Rationalizing Context-Dependent Preferences: Divisive Normalization and Neurobiological Constraints on Choice

47 Pages Posted: 7 Jul 2014 Last revised: 1 Aug 2018

Ryan Webb

University of Toronto

Paul Glimcher

New York University (NYU) - Center for Neuroeconomics

Kenway Louie

New York University (NYU) - Center for Neuroeconomics

Date Written: October 7, 2016

Abstract

Biology places a resource constraint on the neural computations that ultimately characterize stochastic choice behaviour. We incorporate one such computation, divisive normalization, into a neuroeconomic choice model and predict that the composition and size of the choice set will adversely influence choice. Evidence for novel violations of the IIA axiom is provided from two behavioural experiments, and the model more accurately captures observed behaviour compared to existing econometric models. Finally, we demonstrate that normalization implements an efficient means for the brain to represent valuations given neurobiological constraints, yielding the fewest choice errors possible.

JEL Classification: D87

Suggested Citation

Webb, Ryan and Glimcher, Paul and Louie, Kenway, Rationalizing Context-Dependent Preferences: Divisive Normalization and Neurobiological Constraints on Choice (October 7, 2016). Available at SSRN: https://ssrn.com/abstract=2462895 or http://dx.doi.org/10.2139/ssrn.2462895

Ryan Webb (Contact Author)

University of Toronto ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Paul Glimcher

New York University (NYU) - Center for Neuroeconomics ( email )

4 Washington Place, Room 809
New York, NY 10003
United States

Kenway Louie

New York University (NYU) - Center for Neuroeconomics ( email )

4 Washington Place, Room 809
New York, NY 10003
United States

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