A Theory of Chosen Preferences

In: American economic review, Volume 111, Issue 2, p. 720-754

Abstract

We propose and develop a dynamic theory of endogenous preference formation in which people adopt worldviews that shape their judgments about their experiences. The framework highlights the role of mindset flexibility, a trait that determines the relative weights the decision-maker places on her current and anticipated worldviews when evaluating future outcomes. The theory generates rich behavioral dynamics, thereby illuminating a wide range of applications and providing potential explanations for a variety of observed phenomena. (JEL D11, D81, D91, Z13)