Pairwise Normalization: A Neuroeconomic Theory of Multi-Attribute Choice
46 Pages Posted: 9 May 2017
Date Written: May 6, 2017
We propose a theory of multi-attribute choice with foundation in the neuroscience of sensory perception. The theory relies on within-attribute pairwise comparisons by means of divisive normalization, a neural computation widely observed across many sensory modalities and species. The theory captures and unifies a range of phenomena observed in the empirical literature, including the asymmetric dominance effect, the compromise effect, the similarity effect, “majority rule” transitivity violations, subadditive attribute weighting, and comparability biases. Our analysis also demonstrates how pairwise attribute normalization can implement diminishing sensitivity (i.e. Weber’s Law), revealing a link between our theory and the previously-established concept of attribute salience found in the economics literature. A general formulation of our theory contains some canonical microeconomic preference representations as special cases, including CES (constant elasticity of substitution) and Cobb-Douglas utility.
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