The Complexity of Choice and Loss Aversion

Speaker
Kfir Tshuva
Date
02/01/2019 - 20:30 - 19:00Add To Calendar 2019-01-02 19:00:00 2019-01-02 20:30:00 The Complexity of Choice and Loss Aversion Abstract. We present a “satisficing” choice model, in which the consumer looks for a feasible bundle of goods that induces a payoff above a certain threshold. We demonstrate that this problem is computationally difficult (NP-Complete), and therefore solving it entails a significant computation cost. We show that this cost can induce loss aversion, and that the induced loss aversion is non-monotonic with respect to the size of the loss. We present a simple quantitative model and test it on existing experimental results. Our model fits well the experimental results, and in some relevant domains, it has better predictive power than prospect theory. Economics building (504), faculty lounge on the first floor אוניברסיטת בר-אילן - Department of Economics Economics.Dept@mail.biu.ac.il Asia/Jerusalem public
Place
Economics building (504), faculty lounge on the first floor
Affiliation
Bar-Ilan University
Abstract

Abstract. We present a “satisficing” choice model, in which the consumer looks for a feasible bundle of goods that induces a payoff above a certain threshold. We demonstrate that this problem is computationally difficult (NP-Complete), and therefore solving it entails a significant computation cost. We show that this cost can induce loss aversion, and that the induced loss aversion is non-monotonic with respect to the size of the loss. We present a simple quantitative model and test it on existing experimental results. Our model fits well the experimental results, and in some relevant domains, it has better predictive power than prospect theory.

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