Comparisons as Information
- Date: Jul 3, 2025
- Time: 04:00 PM (Local Time Germany)
- Speaker: Mark Dean (Columbia University)
- Room: Ground Floor
We propose a simple and portable information-theoretic model of choice
that formalizes several phenomena at the core of behavioral economics. The
decision maker in our model has incomplete information: he is uncertain how to
value options. To reduce this uncertainty, he relies on reference points as a
source of comparative information. The reference point is endogenous to the
environment and given by the option that is most informative for comparisons.
Other choice options and past choice sets also serve as sources of comparative
information. The simple ideas of value uncertainty and comparative information
provide natural cognitive and information-theoretic foundations for reference
dependence (thinking in gain-loss categories); income targeting and bunching;
behavioral attenuation and diminishing sensitivity; contrast effects; decoy
effects; counting advantages; overweighting high-variance dimensions; habit
formation; status quo bias; and similarity-based analogical reasoning.
The model makes new predictions about when the reference point is given by
rational expectations, similarity-based memory, social comparisons, or the
status quo.