Compromise, extremism, and guilt

This dissertation is a study of non-standard economic behavior. The first chapter concerns two widely observed violations of Independence of Irrelevant Alternatives, the Compromise and Attraction effects. I construct a novel method of representing them by reducing the context of a menu to a frame, encompassing the worst option along each attribute in the menu, and observing a collection of preferences indexed by frames. The agent behaves as though a good’s attractiveness along each attribute is judged relative to the frame with declining marginal utility. This allows me to give a novel interpretation of the compromise and attraction effects: they are consistent with indifference curves rotating clockwise as the frame moves down, and counter- clockwise as it goes left. It also allows me to give a representation theorem showing the behavioral axioms associated with a utility representation taking a good and the frame as arguments. The second chapter applies the representation from Chapter One to electoral politics. It shows that incorporating these preferences generates equilibria where extremist candidates enter plurality elections in order to attractively frame their preferred moderate candidate, even if the extremists have probability zero of obtaining office themselves. While such candidates are frequently observed in elections, and there are papers generating equilibria with centrist sure losers (including Solow (2015)), this is the first paper generating equilibria with these extremist candidates without unusual assumptions on election rules, or non single-peaked preferences. This paper creates a four candidate equilibrium with two extremist sure loser candidates, each on the fringes of opinion. The third chapter concerns the effect of guilt on preferences in the circumstance of gift giving. A decision maker who experiences guilt may receive an increase in surplus from a gift card allowing guilt-free indulgence, potentially beyond even the surplus she’d receive from an equivalent cash gift. This paper isolates the behavior of guilt avoidance by exploiting a multi-period setting which incorporates a distinction between the decision maker’s preferences over what she’d receive, and what she would choose. A representation inspired by Kopylov (2009) is adapted to this setting, providing a representation theorem for these preferences