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Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Cowles Foundation Discussion Papers
Affective decision-making is a strategic model of choice under risk and uncertainty where we posit two cognitive processes — the “rational” and the “emotional” process. Observed choice is the result of equilibirum in this intrapersonal game. As an example, we present applications of affective decision-making in insurance markets, where the risk perceptions of consumers are endogenous. We then derive the axiomatic foundation of affective decision making, and show that, although beliefs are endogenous, not every pattern of behavior is possible under affective decision making.
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Cowles Foundation Discussion Papers
Affective decision-making (ADM) is a refutable and predictive theory of individual choice under risk and uncertainty. It generalizes expected utility theory by positing the existence of two cognitive processes — the “rational” and the “emotional” process. Observed choice is the result of their simultaneous interaction. We present a model of affective choice in insurance markets, where risk perceptions are endogenous.