Context-Dependent Preferences
Management Science · 1993 · Volume 39 · Issue 10
Abstract
The standard theory of choice—based on value maximization—associates with each option a real value such that, given an offered set, the decision maker chooses the option with the highest value. Despite its simplicity and intuitive appeal, there is a growing body of data that is inconsistent with this theory. In particular, the relative attractiveness of x compared to y often depends on the presence or absence of a third option z , and the “market share” of an option can actually be increased by enlarging the offered set. We review recent empirical findings that are inconsistent with value maximization, and present a context-dependent model that expresses the value of each option as an additive combination of two components: a contingent weighting process that captures the effect of the background context, and a binary comparison process that describes the effect of the local context. The model accounts for observed violations of the standard theory and provides a framework for analyzing context-dependent preferences.
Keywords
decision making, consumer choice, independence of irrelevant alternatives
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