Reason-Based Choice: A Bargaining Rationale for the Attraction and Compromise Effects
53 Pages Posted: 8 Sep 2009
Date Written: August 2009
This paper proposes a model of boundedly rational choice that explains the well known attraction and compromise effects. Choices in our model are interpreted as a cooperative solution to a bargaining problem among an individuals conflicting dual selves. We axiomatically characterize a unique bargaining solution that captures both effects when the selves preferences are known. We then provide a revealed preference foundation to our solution, and characterize the extent to which these two underlying preference relations can be uniquely identified.
Keywords: Attraction Effect, Bounded Rationality, Compromise Effect, Cooperative Bargaining, Fallback Bargaining, Reason-based-choice
JEL Classification: C71, C78, D03, D11
Suggested Citation: Suggested Citation