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Preferred personal equilibrium and simple choices

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  • Freeman, David J.

Abstract

This paper studies choices under the preferred personal equilibrium concept introduced by Koszegi and Rabin (2006) for modeling choice given expectations-based reference-dependent preferences. The main result of this paper shows that when expectations are not observed and parametric assumptions on utility are not made, preferred personal equilibrium choice is a special case of the rational shortlist method of Manzini and Mariotti (2007). Building on this connection, the paper provides an axiomatization of preferred personal equilibrium choice behavior and discusses the implications of these results for how choices can be used to test and identify the model, and for the relationship between preferred personal equilibrium and other models of behavior.

Suggested Citation

  • Freeman, David J., 2017. "Preferred personal equilibrium and simple choices," Journal of Economic Behavior & Organization, Elsevier, vol. 143(C), pages 165-172.
    • Handle: RePEc:eee:jeborg:v:143:y:2017:i:c:p:165-172
    DOI: 10.1016/j.jebo.2017.08.016
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    References listed on IDEAS

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    4. Pagel, Michaela, 2019. "Prospective gain-loss utility: Ordered versus separated comparison," Journal of Economic Behavior & Organization, Elsevier, vol. 168(C), pages 62-75.
    5. Andrew Ellis & Yusufcan Masatlioglu, 2022. "Choice with Endogenous Categorization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(1), pages 240-278.
    6. Georgalos, Konstantinos & Paya, Ivan & Peel, David, 2024. "The Kőszegi–Rabin expectations-based model and risk-apportionment tasks for elicitation of higher order risk preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 749-770.
    7. Tserenjigmid, Gerelt, 2019. "Choosing with the worst in mind: A reference-dependent model," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 631-652.
    8. Armouti-Hansen, Jesper & Kops, Christopher, 2024. "Managing anticipation and reference-dependent choice," Journal of Mathematical Economics, Elsevier, vol. 112(C).
    9. Özgür Kıbrıs & Yusufcan Masatlioglu & Elchin Suleymanov, 2023. "A theory of reference point formation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(1), pages 137-166, January.

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