Experimental and empirical evidence shows that the utility an individual derives from a certain state depends on the reference state she compares it to. According to economic theory, this reference state is determined by the past, present and future outcomes of either the individual herself or her reference group. The experiment described in this paper suggests that, in addition, reference stat...

The analysis of lab data entails a joint test of the underlying theory and of subjects’conjectures regarding the experimental design itself, how subjects frame the experiment. We provide a theoretical framework for analyzing such conjectures. We use experiments of decision making under uncertainty as a case study. Absent restrictions on subjects’framing of the experiment, we show that any behav...

This paper suggests a mechanism that describes individuals’ positive self-image in subjective assessments of their relative abilities. The mechanism assumes individuals have heterogeneous production functions that determine ability as a function of multiple skills; make skill-enhancing investments with the goal of maximizing their ability; and make ability comparisons using their own production...

By taking sets of utility functions as primitive, we define an ordering over assumptions on utility functions that gauges their measurement requirements. Cardinal and ordinal assumptions constitute two levels of measurability, but other assumptions lie between these extremes. We apply the ordering to explanations of why preferences should be convex. The assumption that utility is concave qualif...

This paper explores a general model of the evolution and adaption of hedonic utility. It is shown that optimal utility will be increasing strongly in regions where choices have to be made often and decision mistakes have a severe impact on fitness. Several applications are suggested. In the context of intertemporal preferences, the model offers an evolutionary explanation for the existence of c...

We study stable behavior when players are randomly matched to play a game, and before the game begins each player may observe how his partner behaved in a few interactions in the past. We present a novel modeling approach and we show that strict Nash equilibria are always stable in such environments. We apply the model to study the Prisoner’s Dilemma. We show that if players only observe past a...

One problem caused by cycles of choice functions is indecisiveness—decision makers will be paralyzed when they face choice sets with more than two options. We investigate the procedure of “random sampling” where the alternatives are random variables. When comparing any two alternatives, the decision maker samples each of the alternatives once and ranks them according to the comparison between t...

We derive a general framework for cost-benefit analysis and social discounting in a setting with intertemporally dependent preferences. Here, the marginal contribution of an additional unit of consumption in some period depends on what is consumed in the other periods. We use a simple model of history dependent preferences to analyze how habit formation affects the social rate of discount. Gett...

In public good provision, privileged groups enjoy the advantage that some of its members find it optimal to supply a positive amount of the public good. However, their inherent asymmetric nature may make the enforcement of cooperative behavior through informal sanctioning harder to accomplish. In this paper we experimentally investigate public good provision in normal and privileged groups with...

In this paper we apply the instrumental approach to social preferences in order to distinguish among various shapes of preferences for social status. In particular, we consider the shape of reduced preferences that emerge in the equilibrium of a twosided matching model with non-transferable utility. Cole et al. (1992, 1995) show that, under full observability of potential mates’ attributes, ins...