Essays on Consumer Choice and Social Preference

Abstract

People frequently engage in daily activities with two distinct roles: as a consumer, and as a social being. These two are the major parts of human lives where we can find some of the most prominent and fundamental questions: How do consumersmakes decision under resource scarcity and imperfect cognition? What are the considerations underneath social interactions such as allocative decision and reciprocal behavior? This dissertation, Essays on Consumer Choice and Social Preference, focuses on uncovering the mechanisms that drives choice behavior by employing a choice-theoretic approach. Chapter 1: Recommendations play an undeniable role in decision-making. The empirical literature argues that recommendation can influence demand through two distinct channels: i) by enlarging awareness (attention channel), or ii) by altering preferences (utility channel). In this paper, we develop a framework to study these two channels. We illustrate when and how one can distinguish through which channel the recommendations affect choices. We offer both deterministic and probabilistic models. While deterministic models aim to identify the basic observable behavioral differences between these two channels, our probabilistic models are suitable for econometric estimation, which is crucial for studying aggregate behavior used in empirical work. Our parametric models offer unique identification under minimal data requirements. This enables us to make out-of-sample predictions for counter factual analysis for policy design purposes. In addition, we offer simple and intuitive behavioral postulates characterizing each model so that one can test our models. Chapter 2: Consumer has attention scarcity. When there are more products in the market, it is natural to expect that each product gets less attention due to the competition over attention. We call such phenomenon attention overload. However, existing models fall short of capturing attention overload. Interestingly, all existing models on attention fall short of capturing attention overload. Therefore, we propose a model of random attention, Attention Overload Model. Under this assumption, we develop theories on revealed preference and, also, revealed attention – uncovering the upper and lower bounds for the attention an alternative received. We present the characterization results and show that the model reconciles Choice Overload. Lastly, we demonstrate how an additional condition over attention at binaries enhances welfare judgement for policy maker. Chapter 3: We propose and axiomatize the inequality-averse model with rank-dependent (dis-)utility under risk and uncertainty. The model highlights an importtant linkage, Guilt Moderation, between different other-regarding behaviors: when choices are risky, decision maker feels less guilt by assigning more weight to the fairer outcomes, creating a tendency to exhibit self-centered (or altruistic) behavior when outcomes are mixed with a fairer (or unfairer) outcome. Our model provides a unifying explanation for two seemingly distinct reversal behaviors known in the literature as moral wiggle room and ex-ante fairness for you that put into question the consistency of attitudes towards inequality in the presence of uncertainty. Moreover, we characterize guilt moderation with the reversal behaviors and risk preference for others. Lastly, the model sheds light on self-other risk attitudes gap and increased envy in wage transparency.