CIRJE-F-1082 "Attribute-Based Inferences in Subjective State Spaces: A Dissatisficing-Averse Utility Representation"
Author Name Hashidate, Yosuke
Date April 2018
Full Paper PDF file
Remarks  
Abstract

This paper studies preferences over menus, and presents a theory of attribute-based inferences, i.e., a decision-making based on attributes of alternatives. Attribute-based inferences can often lead to systematic violations of rationality, namely, WARP (Weak Axiom of Revealed Preference). The Compromise Effect (Simonson (1989)) is a typical example for the deviation from WARP. In this paper, we introduce plausible new axioms for attribute-based inferences: Dominance, Dissatisfaction, and Contemplation. The three key axioms characterize a dissatisficing-averse utility representation, in which the decision maker determines the optimal weight on the objective attribute space to minimize the deviation from each attribute-best option. We find out that the aversion to the increase in the trade-off across attributes, stated as Dissatisfaction can lead to the Compromise effect. Moreover, by imposing on Dominance, we argue that the Attraction Effect (Huber et al. (1982)), another typical behavioral regularity, may stem from a different cognitive mechanism. As an extended analysis, this paper studies a pair of preferences over menus and choice correspondences to provide behavioral foundations for the ex-post choices of the dissatisficing-averse utility representation, and to consider a relationship between menu-preferences and choices explicitly.