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A Random Reference Model
1 : Sabanci University [Istanbul]
(SU)
-
Website
Sabancı University. Orta Mahalle, Tuzla 34956 İstanbul -
Turkey
2 : U Maryland
3 : Purdue University
(Purdue)
We provide two nested models of random reference-dependent choice in which the reference point is endogenously determined by random processes. Random choice behavior is due to random reference points even though, from the viewpoint of the decision maker, choices are deterministic. We first propose and characterize a parametric random reference model. The components of this model can be identied from observed choices. We then illustrate that similar revelations hold in a much general model as well. Hence, our work is within the revealed preference paradigm.
