Aspiration-based choice

Due to copyright restrictions, the access to the full text of this article is only available via subscription.Numerous studies and experiments suggest that aspirations for desired but perhaps unavailable alternatives influence decisions. A common finding is that an unavailable aspiration steers agents to choose similar available alternatives. We propose and axiomatically characterize a choice theory consistent with this aspirational effect. Similarity is modeled using a subjective metric derived from choice data. This model offers implications for consumer welfare and its distribution between rich and poor when firms compete for aspirational agents, and a novel rationale for sales

The selectivity effect of past experience on purchasing decisions: Implications for the WTA-WTP disparity

When consumers are not fully cognizant of the value of a good, they use their experience to estimate its value. Their past experience is selective if it only contains transactions that were carried out but not potential transactions that were not implemented. Failing to account for this selectivity may result in biased estimates of the post-purchase value. This paper presents a bounded rationality model of this process and investigates consequences vis-à-vis the abnormal disparity between willingness to pay (WTP) and willingness to accept (WTA). Implications for experimental findings concerning the dependence of the WTA/WTP ratio on a good's characteristics and the negative correlation between market experience and the endowment effect are discussed.Endowment effect Selectivity Predicted utility Experienced utility Bounded rationality