A consumption event is memorable if the memory of the event affects well-being at times after the material consumption, as originally introduced by Gilboa et al. (2016). Our main contribution is to develop an axiomatic foundation of memorable consumption in a dynamic setting. Preferences are represented by the present value of the sum of utilities derived at each date from the current consumption and from recollecting the past. Our model accommodates well-known phenomena in psychology, such as the peak-end rule, duration neglect, and adaptation trends. We also provide foundations for a prominent special case of the representation with the Markovian property. The model is illustrated with applications in two different contexts: risk-taking behavior in a principal- agent problem and life-cycle consumption-savings decisions.

Consumption decisions are partly influenced by values and ideologies. Consumers care about global warming, child labor, fair trade, etc. We develop an axiomatic model of intrinsic values—those that are carriers of meaning in and of themselves—and argue that they often introduce discontinuities near zero. For example, a vegetarian’s preferences would be discontinuous near zero amount of animal meat. We distinguish intrinsic values from instrumental ones, which are means rather than ends and serve as proxies for intrinsic values. We illustrate the relevance of our value-based model in different contexts, including equity concerns and prosocial behavior. This paper was accepted by Manel Baucells, behavioral economics and decision analysis. Funding: The authors acknowledge support from the Agence Nationale de la Recherche [Grants ANR-11-IDEX-0003 and 11-LABX-0047], the Israel Science Foundation [Grant 1443/20], the AXA Research Fund [Chair for Decision Sciences], the Foerder Institute at Tel-Aviv University, and the Sapir Center for Economic Development (Gilboa). Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.01632 .

We adopt a definition of “rationality” as robustness to analysis: A mode of behavior is rational for a decision maker if she feels comfortable with it once it has been analyzed and explained to her. With this definition in mind, is it irrational to violate continuity axioms in one’s stated preferences? Specifically, does it make sense to avoid any positive probability of a negative outcome, no matter how small? Or, if a decision maker states such a “zero risk” policy, does she mean what she says? We propose to study this question axiomatically, asking which modes of behavior correspond to such statements. The baseline model evaluates a lottery by its expected utility and an extra additive term that measures the cost of deviating from a “zero risk” choice. A generalized version allows for multiple sets of principles, where the cost of risking a set of principles is added to the expected utility of a lottery. Stronger assumptions imply that the cost of violating a set of principles is additive in the individual costs. We develop a comparative behavioral analysis that allows making interpersonal comparisons about the relative importance of principles.

We adopt a definition of “rationality” as robustness to analysis: a mode of behavior is rational for a decision maker if she feels comfortable with it once it has been analyzed and explained to her. With this definition in mind, is it irrational to violate continuity axioms in one’s stated preferences? Specifically, does it make sense to avoid any positive probability of a negative outcome, not matter how small? Or, if a decision maker states such a “zero risk” policy, does she mean what she says? We propose to study this question axiomatically, asking which modes of behavior correspond to such statements. The baseline model evaluates a lottery by its expected utility and an extra additive term that measures the cost of deviating from a “zero risk” choice. A generalized version allows for multiple sets of principles, where the cost of risking a set of principles is added to the expected utility of a lottery. Stronger assumptions imply that the cost of violating a set of principles is additive in the individual costs. We develop a comparative behavioral analysis that allows to make interpersonal comparisons about the relative importance of principles.

We develop a general framework to study source-dependent preferences in economic contexts. We behaviorally identify two key features. First, we drop the assumption of uniform uncertainty attitudes and allow for source-dependent attitudes. Second, we introduce subjective prices to compare outcomes across different sources. Our model evaluates profiles source-wise, by computing the source-dependent certainty equivalents; the latter are converted into the unit of account of a common source and then aggregated into a unique evaluation. By viewing time and location as instances of sources, we show that subjective discount factors and subjective exchange rates are emblematic examples of subjective prices. Finally, we use the model to explore the implications on optimal portfolio allocations and home bias.

Models of decision-making under uncertainty gain much of their power from the specification of states so as to resolve all uncertainty.?However, this specification can undermine the presumed observability of preferences on which axiomatic theories of decision-making are based.?We introduce the notion of a contingency.?Contingencies need not resolve all uncertainty, but preferences over functions from contingencies to outcomes are (at least in principle) observable.?In sufficiently simple situations, states and contingencies coincide.?In more challenging situations, the analyst must choose between sacrificing observability in order to harness the power of states that resolve all uncertainty, or preserving observability by working with contingencies. JEL?Codes:?D8.

We present and axiomatize a model combining and generalizing theory-based and analogy-based reasoning in decision under uncertainty. An agent has beliefs over a set of theories describing the data generating process, given by decision weights. She also puts weight on similarity to past cases. When a case is added to her memory and a new problem is encountered, two types of learning take place. First, the decision weight assigned to each theory is multiplied by its conditional probability. Second, subsequent problems are assessed for their similarity to past cases, including the newly-added case. If no weight is put on past cases, the model is equivalent to Bayesian reasoning over the theories. However, when this weight is positive, the learning process continually adjusts the balance between case-based and theory-based reasoning. In particular, a “black swan” which is considered a surprise by all theories would shift the weight to case-based reasoning.

We depart from Savage’s (1954) common state space assumption and introduce a model that allows for a subjective understanding of uncertainty. Within the revealed preference paradigm, we uniquely identify the agent’s subjective state space via her preferences conditional on incoming information. According to our representation, the agent’s subjective contingencies are coarser than the analyst’s states; she uses an additively separable utility with respect to her set of contingencies; and she adopts an updating rule that follows the Bayesian spirit but is limited by her perception of uncertainty. We illustrate our theory with an application to the Confirmatory Bias.

We discuss the notion of a state of the world in axiomatic decision theory, and argue that it should be viewed as an "eventuality" that is implicitly assumed to be independent of the process by which prefer- ences are observed. The distinction between states, which are assumed to resolve all uncertainty, and eventualities suggests certain limitations on the axiomatic approach for defining and measuring mental concepts (such as belief ) by observed choices

In the Anscombe-Aumann setup, we provide conditions for a collection of observations to be consistent with a well-known class of smooth ambiguity preferences (Klibanoff P, Marinacci M, Mukerji S (2005) A smooth model of decision making under ambiguity. Econometrica 73(6):1849–1892.). Each observation is assumed to take the form of an equivalence between an uncertain act and a certain outcome. We provide three results that describe these conditions for data sets of different cardinality. Our findings uncover surprising links between the smooth ambiguity model and classic mathematical results in complex and functional analysis.

Warm-glow refers to prosocial behaviour that causes the actor to experience positive feelings, apart from its social implications. We study an individual who enjoys taking a prosocial action that incurs a private cost because such actions improve his social image. A private cost obtains only in the presence of a more selfish option, implying a preference for freedom to behave selfishly. We provide behavioural foundations for this model by building upon the experimental findings on motivation crowding out. Our theory distinguishes between warm-glow and other motivations for giving, and subsumes Andreoni's (1989, 1990) model of public good provision.

Departing from the traditional approach of modeling indecisiveness based on the weakening of the completeness axiom, we introduce the notion of graded preferences: The agent is characterized by a binary relation over (ordered) pairs of alternatives, which allows her to express her inclination to prefer one alternative over another and her confidence in the relative superiority of the indicated alternative. In the classical Anscombe–Aumann framework, we derive a representation of a graded preference by a measure of the set of beliefs that rank one option better than the other. Our model is a refinement of Bewley's [6] model of Knightian uncertainty: It is based on the same object of representation — the set of beliefs — but provides more information about how the agent compares alternatives.

We propose a decision rule — a procedure that maps incomplete judgements of an agent into final choices — that allows us to link confidence in decision-making under uncertainty to the ambiguity attitude displayed in the choice behavior. If this decision rule is applied to an affine graded preference relation (Minardi and Savochkin, 2013), the emerging choice behavior exhibits sensitivity to ambiguity and it is consistent with the generalized Hurwicz α-pessimism model studied by Ghirardato, Maccheroni, and Marinacci (2004); its famous special case of maxmin preferences of Gilboa and Schmeidler (1989) is obtained by imposing certain additional assumptions. We provide two comparative statics results: First, if the level of tolerance for the lack of confidence in comparisons decreases, the agent becomes more ambiguity averse. Second, a more decisive decision maker displays less ambiguity aversion.

This note extends the analysis of Minardi and Savochkin (2013) by providing a slightly more general representation that does not require imposing the Reciprocity axiom. As we elaborate in the main paper, Reciprocity has normative appeal; however, it may seem somewhat restrictive from the descriptive viewpoint. In this note, we show that Reciprocity is far from being a crucial assumption in our earlier analysis, and that essentially the same representation can be obtained without it: A graded preference relation μ that satisfies the remaining axioms can be represented as