Pairwise Normalization: A Neuroeconomic Theory of Multi-Attribute Choice

53 Pages Posted: 9 May 2017 Last revised: 26 Oct 2018

See all articles by Peter Landry

Peter Landry

University of Toronto - Rotman School of Management

Ryan Webb

University of Toronto

Date Written: October 15, 2018

Abstract

We present a theory of multi-attribute choice founded in the neuroscience of perception. Ac- cording to our theory, valuation is formed through a series of pairwise, attribute-level comparisons implemented by (divisive) normalization — a normatively-grounded form of relative value cod- ing observed across sensory modalities and in species ranging from honeybees to humans. As we demonstrate, “pairwise normalization” captures a broad range of behavioral regularities, in- cluding the compromise and asymmetric dominance effects, the diversification bias in allocation decisions, and majority-rule preference cycles (among several others). The model also offers a po- tential neurobiological foundation for Cobb-Douglas preferences and other classic microeconomic preference representations.

Suggested Citation

Landry, Peter and Webb, Ryan, Pairwise Normalization: A Neuroeconomic Theory of Multi-Attribute Choice (October 15, 2018). Available at SSRN: https://ssrn.com/abstract=2963863 or http://dx.doi.org/10.2139/ssrn.2963863

Peter Landry

University of Toronto - Rotman School of Management ( email )

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

Ryan Webb (Contact Author)

University of Toronto ( email )

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

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