The standard revealed preference argument relies on an implicit assumption that a decision maker considers all feasible alternatives. The marketing and psychology literatures, however, provide well-established evidence that consumers do not consider all brands in a given market before making a purchase (Limited Attention). In this paper, we illustrate how one can deduce both the decision maker's preference and the alternatives to which she pays attention and inattention from the observed behavior. We illustrate how seemingly compelling welfare judgments without specifying the underlying choice procedure are misleading. Further, we provide a choice theoretical foundation for maximizing a single preference relation under limited attention. (JEL D11, D81)

We study if and how social preferences extend to risky environments. We provide experimental evidence from different versions of dictator games with risky outcomes and establish that preferences that are exclusively based on ex post or on ex ante comparisons cannot generate the observed behavioral patterns. The more money decision-makers transfer in the standard dictator game, the more likely they are to equalize payoff chances under risk. Risk to the recipient does, however, generally decrease the transferred amount. Ultimately, a utility function with a combination of ex post and ex ante fairness concerns may best describe behavior. (JEL C72, D63, D64, D81)

We take advantage of our knowledge of the neural circuitry of reward to investigate a puzzling economic phenomenon: Why do people overbid in auctions? Using functional magnetic resonance imaging (fMRI), we observed that the social competition inherent in an auction results in a more pronounced blood oxygen level-dependent (BOLD) response to loss in the striatum, with greater overbidding correlated with the magnitude of this response. Leveraging these neuroimaging results, we design a behavioral experiment that demonstrates that framing an experimental auction to emphasize loss increases overbidding. These results highlight a role for the contemplation of loss in understanding the tendency to bid "too high." Current economic theories suggest overbidding may result from either "joy of winning" or risk aversion. By combining neuroeconomic and behavioral economic techniques, we find that another factor, namely loss contemplation in a social context, may mediate overbidding in auctions.An unresolved question in the emerging field of neuroeconomics is whether data from neuroscience can inform economic theory such that it motivates behavioral economic institutional design (1)(2)(3)(4). In this report, we address this question by taking advantage of our knowledge of the neural circuitry of reward to investigate a puzzling economic phenomenon. Specifically, why do people overbid in auctions? (5,6).Auctions are an old and widely used method in allocating goods (7). Mention of them dates back to Roman times, when spoils of war were sold on the block. Although there are many different types of auctions, they all share the feature that bidders must determine a bidding strategy (or bid function) to be used in submitting their bid. A bid function for a buyer in an auction is a mapping from the value that the bidder places on the good for sale to the bid chosen. A set of bidding functions is considered to be an equilibrium (Nash equilibrium) if, given the strategy used by one's opponents, no bidder has any incentive to change his or her bidding strategy. One robust finding in experimental auctions is that bidders tend to bid above their Nash equilibrium risk-neutral bid function (5); this behavior has been labeled "overbidding" in the economics literature. In other words, given the value of the good for (5,6,8). Another explanation stems from the ideas that bidders enjoy a "joy of winning" the social competition inherent in an auction (5,6).The goal of this study is to provide insight into the neural circuitry of experimental auctions and to use this insight to generate and test a behavioral economic approach to understand overbidding. First, we used functional magnetic resonance imaging (fMRI) to examine the neural correlates of winning and losing an experimental auction, while modulating potentially important variables such as type of social competition (auction versus lottery) and type of incentive (money versus points with no monetary value). On the basis of these brain imaging results and our understanding of the ...