MICRO/THEORY: 2 Papers: Consumption of Values and Rationality and Zero Risk; Dr Fan Wang (ESSEC Business School)

Abstract

Consumption of Values Consumption decisions are partly influenced by values and ideologies. Consumers care about global warming, child labor, fair trade, etc. We develop an axiomatic model of intrinsic values – those that are carriers of meaning in and of themselves and argue that they introduce discontinuities near zero. For example, a vegetarian’s preferences would be discontinuous near zero amount of animal meat. We distinguish intrinsic values from instrumental ones, which are means rather than ends and serve as proxies for intrinsic values. We illustrate the relevance of our value-based model in different contexts, including equity concerns and prosocial behavior. In particular, we show how it can accommodate the discontinuities observed in well-known experiments on motivation crowding-out. Finally, we discuss the measurability of the degree to which consumers care about such values.

Rationality and Zero Risk We adopt the definition of “rationality” as robustness to analysis: a mode of behavior is rational for a decision maker if she feels comfortable with it once it has been analyzed and explained to her. With this definition in mind, is it irrational to violate continuity axioms in one’s stated preferences? Specifically, does it make sense to avoid any positive probability of a negative outcome, not matter how small? Or, if a decision maker states such a “zero risk” policy, does she mean what she says? We propose to study this question axiomatically, asking which modes of behavior correspond to such statements. The baseline model evaluates a lottery by its expected utility and an extra additive term that measures the cost of deviating from a “zero risk” choice. A generalized version allows for several sets of values, where the cost of risking an outcome in these sets is added to its expected utility. Stronger assumptions imply that the cost of sets of values is additive over these sets. We develop a comparative behavioral analysis that allows to make interpersonal comparisons about the relative importance of values.