In a simple conceptual framework, we organize a multitude of phenomena related to the (mis)prediction of utility. Consequences in terms of distorted choices and lower wellbeing emerge if people have to trade-off between alternatives that are characterized by attributes satisfying extrinsic desires and alternatives serving intrinsic needs. Thereby the neglect of asymmetries in adaptation is prop...

This paper shows that in situations in which the preferences of multiple selves are aggregated into a collective decision, even if the researcher has a fully specified theory of how preferences get aggregated, there are typically no testable implications of the theory unless there is an a priori restriction on the number of selves. This result has implications in both interpersonal and intraper...

Motivated by the extensive evidence about the relevance of status quo bias both in experiments and in real markets, we study this phenomenon from a decisiontheoretic prospective, focusing on the case of preferences under uncertainty. We develop an axiomatic framework that takes as a primitive the preferences of the agent for each possible status quo option, and provide a characterization accord...

We examine the consumption and portfolio decisions of an agent with Friedman-Savage type period utility in continuous time.We find the FriedmanSavage consumer does not gamble, but will aggressively invest in risky activities for wealth levels that support a minimum subsistence level of consumption. As the market premium of risk approaches zero, the agent becomes infinitely aggressive for these ...

We introduce the concept of a conditional small world event domain—an extension of Savage’s [The Foundations of Statistics, Wiley, NewYork, 1954] notion of a ‘small world’—as a self-contained collection of comparable events. Under weak behavioral conditions we demonstrate probabilistic sophistication in any small world event domain without relying on monotonicity or continuity. Probabilistic so...

Ofer H. Azar* Department of Economics Northwestern University June 2003 Abstract The paper presents a model of the evolution of social norms. When a norm is costly to follow and people do not derive benefits from following it except for avoiding social disapproval, the norm erodes over time. Tip percentages, however, increased over the years, suggesting that people derive benefits from tipping,...

Supermodularity has long been regarded as a natural notion of complementarities in individual decision making; it was introduced as such in the nineteenth century by Edgeworth and Pareto. But supermodularity is not an ordinal property. We study the ordinal content of assuming a supermodular utility, i.e. what it means for the individual’s underlying preferences. We show that supermodularity is ...

The structural consumer demand methods used to estimate the parameters of collective household models are typically either very restrictive and easy to implement or very general and dif cult to estimate. In this paper, we provide a middle ground. We adapt the very general framework of Browning, Chiappori and Lewbel (2007) by adding a simple restriction that recasts the empirical model from a hi...

The higher our aspirations, the higher the probability that we have to adjust them downwards when forming more realistic expectations later on. This paper shows that the costs induced by high aspirations are not trivial. We first develop a theoretical framework to identify the factors that determine the effect of aspirations on expected utility. Then we present evidence from a lab experiment on...

This is the first paper on consumer search where the cost of going back to stores already searched is explicitly taken into account. We show that the optimal sequential search rule under costly second visits is very different from the traditional reservation price rule in that it is nonstationary and not independent of previously sampled prices. We explore the implications of costly second visi...