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Abstract:
A central theme in behavioral economics focuses on experimental
evidence that individuals learn from the choice problems they face and
consequently violate the consistency requirements of revealed preference theory. Despite the experimental evidence, the testable implications of such contextual inference remain unclear. In particular, it is an
open question if learning from the choice problem imposes any restrictions on observed behavior. Motivated by the Shafir and Tversky [18]
experiments, this paper models contextual inference in the framework
of preference for flexibility introduced by Kreps [10] and extended by
Dekel, Lipman, and Rustichini [4]. Within this framework, the paper
proposes a relaxation of the weak axiom which formalizes the identification strategy in Shafir and Tversky [18]. A subjective state space
that may depend on the subset of actions faced by the individual is
uniquely identified from behavior, and local preferences are partially
recovered.
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