We introduce the comparison based model (CBM) in which a decision maker evaluates goods not only according to their intrinsic values but also by how difficult it is to compare them to other goods. The model naturally explains context effects, such as choice overload, choice under conflict and decision avoidance. It also sheds light on the weakening of the compromise effect in the presence of an outside option. We provide a formal derivation of the model based on two testable restrictions imposed on the decision maker's willingness to pay for alternatives in different contexts. Under a richness assumption, the impact of comparisons on willingness to pay is independent of the menu size within a large class of preferences.
All Science Journal Classification (ASJC) codes
- !!Economics and Econometrics
- !!Applied Psychology
- !!General Social Sciences