This paper develops axiomatically a revealed preference theory of reference-dependent choice behavior. Instead of taking the reference for an agent as exogenously given in the description of a choice problem, we suitably relax the Weak Axiom of Revealed Preference to obtain, endogenously, the existence of reference alternatives as well as the structure of choice behavior conditional on those alternatives. We show how this model captures some well-known choice patterns such as the attraction effect.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics