Choices without preferences: Principles of rational arbitrariness

Area of Science:

• Behavioral Economics
• Decision Theory
• Cognitive Psychology

Background:

• Traditional rational choice models assume complete preferences, which is psychologically implausible.
• Behavioral anomalies like the endowment effect challenge existing decision-making theories.

Purpose of the Study:

• To develop a rational analysis of decision-making with incomplete preferences.
• To re-explain common behavioral anomalies within a new theoretical framework.

Main Methods:

• Constructing a normative framework for rational choice theory, divided into preference and implementation theory.
• Analyzing how conservative and coherently arbitrary policies implement incomplete preferences.

Main Results:

• Incomplete preferences offer a novel explanation for behavioral "anomalies" such as the endowment effect, status quo maintenance, and sunk cost effects.
• The endowment effect and similar phenomena are better explained by conservatism in the implementation phase, not loss aversion in evaluation.

Conclusions:

• The proposed two-part framework (preference and implementation theory) provides a more psychologically plausible model of rational choice.
• This approach challenges the normative adequacy of expected utility theory and prospect theory, highlighting the interplay between psychological value structures and normative choice.