State dependent choice

Abstract

We propose a theory of choices that are influenced by the psychological state of the agent. The central hypothesis is that the psychological state controls the urgency of the attributes sought by the decision maker in the available alternatives. While state dependent choice is less restricted than rational choice, our model does have empirical content, expressed by simple ‘revealed preference’ type of constraints on observable choice data. We demonstrate the applicability of simple versions of the framework to economic contexts. We show in particular that it can explain widely researched anomalies in the labour supply of taxi drivers.