Abstract

We present a descriptive model of choice that incorporates neurobiological constraints, representational structures and costs into a traditional economic framework. An individual's behavior is fully described by two, in principle observable, primitives: an individual's neural/mental capacity and an endogenous rational expectation. The model captures the phenomena captured by Prospect Theory: reection in risk attitudes and loss aversion, but unlike Prospect Theory accounts for individual heterogeneity in each and employs fewer parameters. Our theory provides an alternative explanation for endowment eect and makes a series of novel predictions amenable to future testing.

Reference

Agnieszka Tymula, “Expected Subjective Value Theory (ESVT): A Representation of Decision Under Risk and Certainty”, IAST General Seminar, Toulouse: IAST, October 7, 2016, 11:30–12:30, room MF323.