A Canonical Model of Choice with Initial Endowments∗
نویسندگان
چکیده
We use the revealed preference method to derive a model of individual decision making when one’s endowment provides a reference point that may influence her choices. This model generalizes the classical rational choice model. While the latter views choice as a consequence of “utility maximization,” the model proposed here views choice as arising from “mentally constrained utility maximization,” where the constraints are induced by one’s initial endowment. In particular, this model allows for status quo bias. A range of economic applications are presented to identify the predictive and explanatory strength of the model. . JEL Classification: D11, D81.
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