Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/200263
Authors: 
Nosratabadi, Hassan
Year of Publication: 
2017
Series/Report no.: 
Departmental Working Papers, Rutgers University, Department of Economics 2017-07
Abstract: 
References can influence choice. One of the well-studied cases is when a decoy is added to the menu. However small in magnitude, decoy effect violates the weak axiom of revealed preferences (WARP). In order to explain the small deviation from the classical revealed preference theory, I decompose WARP into independent axioms in order to only remove the ones which are inconsistent with the this effect. This minimal deviation produces the referential revealed preference theory that keeps the strong predictive power offered in the classical theory while explaining the referential effect.
Subjects: 
Reference-Dependent Choice
Reference Preferences
Decoy Effect
Attraction Effect
WARP Decomposition
JEL: 
D11
D81
Document Type: 
Working Paper
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