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Thursday, December 12, 2019 at 11:40am to 1:10pm
Uris Hall, 498
Jason Somerville - Cornell University
Abstract: This paper investigates whether the composition of a choice set alters the relative importance of different attributes. I derive the distinguishing predictions of several leading models of choice-set-dependent preferences, including the focusing model of Koszegi and Szeidl (2013), the salience theory of Bordalo, Gennaioli, and Shleifer (2013), and the relative thinking model of Bushong, Rabin, and Schwartzstein (2019). I test these predictions in a laboratory experiment in which I vary the prices of high- and low-quality variants of multiple products. The data provide clear evidence of choice-set dependence: price increases that expand the range of prices in the choice set lead to more purchases; increasing prices while holding fixed price differences induces substitution to higher-quality options. Structural estimates imply that most participants exhibit choice-set dependence consistent with Bushong, Rabin, and Schwartzstein (2019), albeit with substantial heterogeneity in the intensity of the effect.