Aspiration-Based Choice Theory∗

Numerous studies and experiments suggest that aspirations for desired but perhaps unavailable alternatives influence decisions. A common finding is that an unavailable aspiration steers agents to choose similar available alternatives. We propose and axiomatically characterize a choice theory consistent with this finding. Similarity is modeled using a subjective metric derived from choice data. This model offers novel implications for (1) the effect of past consumption on current decisions, (2) social influence and conformity within a network, and (3) the distribution of welfare when firms compete for aspirational agents. ∗We are indebted to Efe A. Ok for his continuous support and guidance throughout this project. We especially thank Andrew Caplin, Alan Kirman, Paola Manzini, Marco Mariotti, Vicki Morwitz, David Pearce, Debraj Ray, Ariel Rubinstein, Tomasz Sadzik, Karl Schlag, Andrew Schotter and Roee Teper for their useful suggestions and comments. †Department of Economics, Ozyegin University. E-mail: [email protected] ‡Department of Economics, Yeshiva University. E-mail: [email protected] §Department of Economics, University of Vienna. E-mail [email protected]