Temptation and Subjective Feasibility

This paper presents a model of choice induced by constrained optimization, where the constraint sets are subjective. The main idea is that the decisionmaker (DM) faces an unobservable constraint, e.g. temptation, at the point of choice and this constraint distorts choices by rendering some objects in the menu infeasible. This creates a distinction between the (objective) physical set of choices and the subset of (subjectively) feasible choices. Whereas a standard (Arrowian) DM maximizes a fixed utility over the physical set of choices, our DM’s maximize a fixed utility on the set of subjectively feasible choices. Consequently, when the two sets don’t agree, choices from the overall opportunity set may look non-Arrowian even though, from the DM’s perspective, choices are completely standard. The model provides a concise explanation for two experimentally confirmed phenomena, (i) the compromise effect and (ii) (a version of) the attraction effect, both of which are welldocumented examples of WARP violations, but neither of which can be explained by (most) existing models of menu choice. Moreover, the parameters of the utility are behaviorally identified.