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Theories on Preferences

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Preferences in Negotiations

Part of the book series: Lecture Notes in Economics and Mathematical Systems ((LNE,volume 595))

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Since negotiators are decision-makers, understanding a negotiation requires a deep understanding of the negotiators’ decisions. As Hayek suggests, the theoretical foundations in this chapter address decision-making and preferences from the viewpoint of different disciplines. The origin of preferences and their stability over time varies widely across fields: Economists, for example, usually assume preferences to be an underlying property of any individual and to be stable over time. If an agent’s choice changes over time, then either the production technology available or the information at hand have changed—preferences do not. This widely used perspective is most notably vindicated by Stigler and Becker (1977) in a seminal paper arguing against the assumption of changing preferences and it is outlined in several microeconomic textbooks, e.g. Kreps (1990), Varian (1992), Mas-Colell, Whinston, and Green (1995).

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  1. The proof is provided by Kreps (1988, p. 9) for his proposition 2.3.

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  2. The proof is provided by Kreps (1988, p. 10) for his proposition 2.4.

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  3. The proof is provided by Kreps (1988, pp. 19–22) for his proposition 3.2.

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  4. Kahneman and Tversky (1979) avoided the heavily used term utility function and used value function instead. The same terminology is applied here.

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  5. Franciosi et al. (1996) replicated some settings of Kahneman, Knetsch, and Thaler (1990) and reformulated the instructions in a way that all references to ‘buying’,’ selling’, and ‘prices’ were removed. This replication confirmed the results of Kahneman et al. qualitatively although less pronounced.

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  6. The model by Payne et al. is discussed in Section 2.3.1.

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  7. Note that a multi-issue utility function can be expressed in weighted additive form if and only if mutual preferential independence of the issues holds. See Keeney and Raiffa (1993, Ch. 3) for the exact representation theorems which provide conditions for expressing utility functions in weighted additive form.

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(2007). Theories on Preferences. In: Preferences in Negotiations. Lecture Notes in Economics and Mathematical Systems, vol 595. Springer, Berlin, Heidelberg.

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