Context-dependent Preferences

Amos Tversky • Itamar Simonson

Department of Psychology and Graduate School of Business, Stanford University, Stanford, California 94305

T he standard theory of choice—based on value maximization—associates with each option

a real value such that, given an offered set, the decision maker chooses the option with
the highest value. Despite its simplicity and intuihve appeal, there is a growing body of data
that is inconsistent with this theory. In particular, the relahve attractiveness of x compared to
y often depends on the presence or absence of a third option z, and the "market share" of an
option can actually be increased by enlarging the offered set. We review recent empirical findings
that are inconsistent with value maximization, and present a context-dependent model that
expresses the value of each option as an additive combination of two components: a contingent
weighting process that captures the effect of the background context, and a binary comparison
process that describes the effect of the local context. The model accounts for observed violations
of the standard theory and provides a framework for analyzing context-dependent preferences.
{Decision Making; Consumer Choice; Independence of Irrelez'aiit Alternatives)

The theory of rational choice assumes that preference
between options does not depend on the presence or
absence of other options, This principle, called indepen-
dence of irrelevant alternatives, is essenhally equivalent
to the assumption that the decision maker has a com-
plete preference order of all options, and that—given
an offered set—the decision maker always selects the
option that is highest in that order. Despite its simplicity
and intuitive appeal, experimental evidence indicates
that this principle is often violated {see Huber et al.
1982, Simonson and Tversky 1992). In this article, we
review these findings and present a context-dependent
model of choice. The paper is organized as follows. Sec-
tion 1 defines the problem and introduces some basic
concepts. Section 2 discusses and illustrates empirical
phenomena that are inconsistent with the classical
model. Section 3 presents a context-dependent analysis
of choice, called the componential context model. Section
4 employs this model to explain the observed findings.
Section 5 discusses implications and limitations of the
model.
1. Introduction
Let T = {x, y, z, • • • } be a finite set that includes all
options under study. To describe choice among options
we use the choice function C that associates with any
offered set SC Ta nonempty subset of S, denoted C{S),
which consists of the options chosen by the decision
maker. If there are no ties, then C(S) includes a single
option. If ties are allowed, then C(S) consists of those
elements of S that are tied for first place.
A choice function C satisfies value maximization (VM)
if there exists a function v that assigns a real value to
each a: in T such that
xeCiS) iff vix)^viy) for all yeS.
VM implies that the ordering of options is independent
of the choice set. In particular, if x is preferred to y in
a binary choice, it is also preferred to y in a multiple
(i.e., nonbinary) choice. Furthermore, if A: £ C{S) and
X G R C S then x E C (R). In other words, a nonpreferred
option cannot become preferred when new options are
added to the offered set. The principle of value max-
imization, therefore, captures the notion of indepen-
dence of irrelevant alternatives.
Although the theory refers to the choices of a single
person, most of the available data are pooled across
individuals. To apply the theory to aggregate data, as-
sume for simplicity that ties are excluded, and let
P{x,S)be the proportion of people for whom jr

0025-1909/93/3910/n79$01.25
Copyright O 1993. The Institute of Management Sciences MANAGEMENT SciENCE/Vol. 39, No. 10, October 1993 1179
 TVERSKY AND SIMONSON
Context-dependent Preferences

W e w r i t e P{x; y) f o r P{x, [x, y]) a n d P{x; y, z) f o r Figure 1 An Illustration o( the Betweenness Retalion (xiy\z)
P{x,{x.y.z]). in the Plane
It is noteworthy that the properties of the choice
function C are not always reflected in the aggregate
measure P. In particular, value maximization entails that
an individual who prefers x over y in a binary choice
cannot select y from the set {x, y, z}. But even if
each individual satisfies VM we could obtain P(x; y)
1
i
> P(y; x) and P(x; y, z) < P{y; x, z) if those who prefer y 1
X over y also prefer z over x. For example, a liberal
candidate x may defeat a conservative candidate y in a
two-person race, yet y may win more votes than jr in a
I
three-person race that includes another liberal candidate
2. Indeed, it has been known for more than two cen-
turies that the aggregation of different transitive pref-
erence orders can yield intransitive majority choice. This
raises the question of whether VM can be tested in ag- Attribute!
gregate data. An affirmative answer is provided by the
following property.
This index measures the "popularity" of 1/ relative to x,
Regularity: xGRCS implies P{x, R) > P{x, S).
inferred from the choice set {x, y, z].
Regularity states that the "market share" of an option We show in the appendix that VM in conjunction
cannot be increased by enlarging the choice set. Recall with a highly plausible assumption, called the ranking
that under VM, xG C{S) implies i G C{R) whenever :r condition, implies the following property.
G R C S. If each person who selects x from S also selects
X from R, then P{x, R) > P{x, S). Thus, VM implies Betweenness inequality:
regularity, which is readily tested in aggregate data.
Regularity, however, does not exhaust the testable .- "' ' ' x\y\z implies P(i/; r) ^ P^(i/;x).
consequences of VM. To obtain a more sensitive test of
VM using aggregate data we impose additional structure The betweenness inequality states that the middle
on the option space. As in the standard theory of the option y loses relatively more than the extreme option
X from the introduction of the other extreme option z.
consumer, we assume that each option J: in T is repre-
For example, the addition of a top-of-the-Iine camera
sented by a vector {Xj, . . . , Xn) where x, is the value of
is expected to reduce the market share of a midline
the option on the iih attribute. Furthermore, we assume
camera more than the share of a basic camera. Assuming
that preference is monotonic, separately in each attri-
the ranking condition, the betweenness inequality can
bute. That is, the values of each attribute can be ordered
be used, in addition to regularity, to test VM using ag-
so that, holding the values of all other attributes con-
gregate data. Experimental tests of these properties are
stant, a higher value is always preferred to a lower value.
described in the next section.
The dimensional structure allows us to define a be-
tweenness relation among the options. We say that y
lies between x and z, denoted x\y\z, if and only if for
each dimension i either x, :£ t/; :^ 2, or x, ^ y^ ^ 2,, 2. Data
I = 1, . . . , « ; see Figure 1. In this section we introduce two psychological hy-
To explore the implications of this relation, define potheses, called tradeoff contrast and extremeness aver-
sion, which give rise to a series of context effects that
violate the principle of value maximization. These hy-
P(y;x,z) + P(x;y,z) ' potheses are discussed in turn.

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 TVERSKY AND SIMONSON
Contexl-dependent Preferences
Tradeoff Contrast
Contrast effects are ubiquitous in perception and judg-
ment. For example, the same circle appears large when
surrounded by small circles and small when surrounded
by large ones. Similarly, the same product may appear
attractive on the background of less attractive products
and unattractive on the background of more attractive
products. We suggest that the effect of contrast applies
not only to a single attribute, such as size or attractive-
ness, but also to the tradeoff between attributes. Con-
sider, for example, products that vary on two attributes;
suppose X is of higher quality but y has a better price.
The decision between x and y, then, depends on
whether the quality difference outweighs the price dif-
ference, or equivalently on the price/quality tradeoff.
We propose that the tendency to prefer x over y will be
enhanced if the decision maker encounters other choices
in which a comparable improvement in quality is as-
sociated with a larger difference in price. This is the
tradeoff contrast hypothesis. As illustrated below, it ap-
plies to the local context defined by the offered set, as
well as to the background context, defined by options
encountered in the past. (Throughout this article, we
use the word context to describe the set of options under
consideration.)
Background Context. Perhaps the simplest dem-
onstration of the tradeoff contrast hypothesis involves
manipulation of the background context (Simonson and
Tversky 1992). Half the subjects were given a choice
between options x' and y', whereas the second half chose
between x" and y" (see Figure 2). Following the initial
choice, all subjects were given a choice between x and
y. The tradeoff contrast hypothesis implies that the ten-
dency to prefer x over y will be stronger among subjects
who first chose between x' and y' than among those
who first chose between x" and y". Table 1 presents the
results for two categories: tires that vary in warranty
and price, and gifts consisting of a combination of cash
and coupons. Each coupon could be redeemed for a
regular book or compact disk at local stores. Subjects
were informed that one of them, selected randomly,
would actually receive the gift that he or she had se-
lected.
Table 1 shows that the background influenced sub-
sequent choice in the predicted direction. The results
for tires indicate that subjects exposed to Background
MANAGEMENT SciENCE/Vol. 39, No. 10, October 1993
Figure 2 A Test ot Background TradeofI
/
J
"\ •ir
r
*- -
.•
y
\,
X
X"
Attribute 1
B' in which a small difference in price ($91 versus $85)
was associated with a large difference in warranty
(75,000 versus 55,000 miles), were more likely to select
from the target set the less expensive tire than those
exposed to Background B", in which a relatively large
difference in price ($49 versus $25) was associated with
a small difference in warranty (35,000 versus 30,000
miles). The same pattern was observed for gifts, as seen
in the lower part of Table 1. Here the rate of exchange
was $15 per coupon in Background B', $5 per coupon
in Background B", and $10 per coupon in the target set.
The data again showed that subjects exposed to the
background in which coupons were fairly expensive
were significantly more likely to select from the target
set the gift with more coupons than subjects exposed
to the background in which coupons were relatively
inexpensive.
It could be argued that the observed violations of VM
can be justified in terms of the information provided
by the context. We wish to make two points in response.
First, regardless of whether the observed pattern of
preferences can or cannot be justified on normahve
grounds, the data violate the principle of independence
of irrelevant alternatives. If people commonly rely on
the set of alternatives under consideration in order to
1181
 TVERSKY AND SIMONSON
Context-dependent Preferences

Table 1 Background Contrast that the effect of the background was no stronger for
tires than for books (see Table 1). It appears that peo-
Category: Tires
ple's choices exhibit tradeoff contrast whether or not it
Background Set is normatively justified.
B- B- Local Context. Another implication of the tradeoff
Warranty Price (fi-111) (n=109) contrast hypothesis is that the "market share" of x can
be increased by adding to {x, y] a third alternative z
x : 55,000 miles $85 12% that is clearly inferior to x but not to y. Violations of
y': 75,000 miles $91 88%
regularity based on this pattern were first demonstrated
jif": 30,000 miles $25 84%
y": 35,000 miles $49 16%
by Huber et al. (1982). The following example is taken
from Simonson and Tversky (1992). One group (n
Warranty Price Target Set
= 106) was offered a choice between $6 and an elegant
x: 40,000 miles $60 57% 33%
Cross pen. The pen was selected by 36% of the subjects
y: 50,000 miles $75 43% 67% and the remaining 64% chose the cash. A second group
(tt = 115) was given a choice among three options; $6
Category: Gifts in cash, the same Cross pen, and a second less attractive
Background
pen. The second pen, we suggest, is dominated by the
first pen but not by the cash. Indeed, only 2% of the
B' B" subjects chose the less attractive pen, but its presence
Cash Coupons (n = 51) (n = 49)
increased the percentage of subjects who chose the
x-\ $52 92% Cross pen from 36% to 46%, contrary to regularity.
y : $22 5 8% In another study, subjects received descriptions and
X-; $77 4 40% pictures of microwave ovens taken from the Best catalog.
y-: $67 6 60%
One group (« = 60) was asked to choose between an
Cash Coupons Target Set Emerson priced at $ 110 and a Panasonic priced at $ 180.
Both items were on sale, a third off the regular price.
x:$47 5 47% 77%
Here, 57% chose the Emerson and 43% chose the Pan-
y: $37 6 53% 23%
asonic. A second group (« = 60) was presented with
these options, along with a $200 Panasonic at a 10%
discount. Because the two Panasonics were quite similar,
assess the value of an option, then the standard theory the one with the lower discount appeared inferior to
should be thoroughly revised to accommodate decisions the other Panasonic but it was not clearly inferior to
based on such inferences. Second, an account based on the Emerson. Indeed, only 13% of the subjects chose
rational inference can explain some examples (e.g., tires) the more expensive Panasonic, but its presence in-
but not others (e.g., gifts), A consumer who is uncertain creased the percentage of subjects who chose the less
about the price of warranty may use the information expensive Panasonic from 43% to 60%, contrary to reg-
provided by the background to evaluate whether paying ularity.
$15 for 10,000 miles of warranty is a good deal or not. As noted earlier, many violations of VM cannot be
The background contrast effect observed in this prob- properly explained in terms of a rational inference. For
lem, therefore, can be interpreted as rational inference example, this account does not explain the choice among
based on the information provided by the context. This the cash and the pens, or the violations of VM observed
account, however, does not explain the background in choice among simple gambles (see, e.g., Wedell 1991)
contrast effect in the choice between gifts. Suppose you where the context provides no information about the
are just willing to trade $10 in cash for one book coupon. quality of the options. We have also observed violations
Why should you change your mind after observing gifts of regularity when the subjects reviewed all the options
in which the corresponding tradeoff is $5 or $15? Note under study before choosing from an offered subset

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 TVERSKY AND SIMONSON
Context-dependent Preferences

{Simonson and Tversky 1992), An alternative inter- priced at $170 and a Minolta 3000i priced at $240, A
pretation of the data in terms of range frequency theory second group (n = 115) was given an additional option,
(Parducci 1965, Birnbaum 1974) has been tested by the Minolta 7000i priced at $470. Subjects in the first
Huber and Puto (1983) and by Wedell (1991). Both group were split evenly between the two options, yet
studies showed that the violations of regularity induced 57% of the subjects in the second group chose the mid-
by the addition of an inferior option cannot be explained dle option (Minolta 3000i), with the remaining divided
by the resulting extension of the attribute range, as sug- about equally between the two extreme options. Con-
gested by that theory. trary to VM, the introduction of an extreme option re-
Extremeness Aversion duced the market share of the other extreme option,
Recent work has provided a great deal of support for but not of the middle option. These data also illustrate
the principle of loss aversion, according to which losses the diagnostic significance of the betweenness inequal-
loom larger than the corresponding gains (Kahneman ity. Whereas the violation of regularity in this problem
et al, 1991, Tversky and Kahneman 1991). Gains and is fairly mild, P{y; x, z) - P(y; x) = 0.57 - 0.50 = 0.07,
losses are defined relative to a neutral reference point i = 1.0, ns, the violation of the betweenness inequality
that generally corresponds to the decision maker's status is quite pronounced:
quo or current endowment. In some situations, however, P.iy: X) - P{y: x) = 0.57/(0.57 + 0.22) - 0.50 = 0.22,
decision makers may evaluate options in terms of their
f - 3 , 2 , p<0,01.
advantages and disadvantages, defined relative to each
other, A natural extension of loss aversion suggests that Polarization. Compromise refers to a symmetric
disadvantages loom larger than the corresponding ad- form of extremeness aversion in which the popularity
vantages. As a consequence, options with extreme val- of the middle option is enhanced relative to both ex-
ues within an offered set will be relatively less attractive tremes. In other situations, people exhibit extremeness
than options with intermediate values. This is the ex- aversion with respect to one attribute only. If disad-
tremeness aversion hypothesis; it gives rise to two ef- vantages loom larger than advantages on one dimension
fects: compromise and polarization, which are discussed but not on the other, then the introduction of a third
in turn. alternative would produce a bias against one of the ex-
Compromise. Consider two-dimensional options, tremes, but not against the other. We have observed
X, y and 2, such that y lies between x and z (see Figure this effect, called polarization, in several experiments
1). Recall that VM in conjunction with the ranking con- involving price/quality tradeoffs. For example, we in-
dition implies that the middle alternative y should be vestigated choices involving three AM-FM cassette
less popular in the context of the triple {x. y, z} than players: an inexpensive Emerson for $40, a regular Sony
in either one of the pairs, [x, y] or {y, z}. That is, for $65, and a high-quality Sony for $150. In all three
P{y; x) > P,iy; x) and P{y; z) > P,(i/; z). Extremeness binary choices, subjects were divided approximately
aversion, on the other hand, yields the opposite pre- equally between the options. However, in the trinary
diction. Note that y has small advantages and disad- choice 9% chose the Emerson whereas 43% chose the
vantages with respect to x and to z, whereas both x and high-quality Sony. Evidently, the option with the lower
z have a large advantage and a large disadvantage with quality (and lower price) in a binary choice is less aver-
respect to each other. Consequently, extremeness aver- sive than the option with the lowest quality {and lowest
s i o n i m p l i e s P,{y; x) > P(y; x) a n d P,{y; z) > P{y; z). price) in a trinary choice. There is no extremeness aver-
This pattern is called compromise because the middle sion in binary choice because no option is more extreme
option y may be viewed as a compromise between the than the other. For further discussion, see Simonson
two extreme options x and z (Simonson 1989). We have and Tversky {1992).
observed the compromise effect in several experiments.
For example, subjects were asked to choose among 3. Theory
35 mm cameras varying in quality and price. One group In this section, we develop a theoretical analysis that
(tt = 106) was given a choice between a Minolta X-370 accommodates the effects reviewed above. We distin-

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 TVERSKY AND SIMONSON
Context-dependent Preferences

guish between the background context defined by prior though additivity is not generally assumed in the stan-
options, and the local context defined by the choice set. dard theory of the consumer, it is satisfied by some
These aspects of the choice context can vary indepen- of the commonly-used utility functions (e.g., Cobb-
dently. In the study of background contrast (see, e.g.. Douglas). Additive representations of binary prefer-
Table 1) we manipulated the options presented to sub- ences have been discussed by several authors (e.g.,
jects prior to the target set, whereas in studies of local Krantz et al. 1971, Keeney and Raiffa 1976, Wakker
contrast we manipulated the choice set without varying 1989). In this model, the functions Vi. . . . , v^ are in-
the background context. terval scales with a common unit.
Let Cfl( •) denote the choice function associated with Given an additive value structure, we assume that
background context B. Thus, CB{S)=X means that, given the effect of the background can be described as a
B, X is selected from a choice set S. We first introduce change in the relative weights of the attributes. In other
a general model that represents choice in terms of a words, for any background context B there exist non-
real-valued function V, in three arguments, such that negative weights bu . , . , (;„, satisfying bj + . . . + b„
for any background context B and any choice set S = 1, such that
CB(S)=X iff VB{x,S)>VB{y,S) for all yGS
(3)
where VB{X, S) = v{x) + + 0g{x, S), (-1

Thus the first two components of Equation (1) can be

This model expresses the choice function as a linear
combination of three components: v{x), the context-
free value of X independent of B and S; /s(x), the effect
of the background; and^(3:, S), the impact of the choice
set. The coefficients 0 and 6 control the relative contri-
butions of these components. \i 0 = 6 = 0, Equation (1)
reduces to VM. Thus, 0 and 8 are expected to vanish in
situations where people have well-articulated prefer-
ences, and they are expected to be positive when the
choice is more difficult and less certain.
This model is very general: it assumes only that the
background B and the choice set S contribute additively
to the attractiveness of an option. We next develop a
more specific model by imposing additional constraints
on all three components of Equation (1). First we as-
sume that, given a fixed background context, the binary
preference order has an additive representation. That
is, there exist real-valued functions, v^, . . . , ! ? „ such
that, given a binary choice set {x,y},x = {Xi, . . . , x„)
is preferred to i/ = (l/i, . . . , ! / „ ) if and only if
2 (2)
1=1
combined:
v{x) + where ft = 1 -I- ^&,. (4)
According to this form the weight 0, of attribute i can
be viewed as a combination of the "intrinsic" weight
of that attribute and the weight induced by the back-
ground. We further assume that the b,'s correspond to
the tradeoffs among the attributes in the frontier defined
by the background context. Thus, consumers will be
more or less willing to pay a given price for some good
depending on whether this price is lower or higher than
the background price.
We turn now to the effect of the choice set, which is
represented in terms of pairwise comparisons of ad-
vantages and disadvantages. For any pair of options x,
y, we define the advantage of x over y with respect to
attribute /, denoted Ai{x, y), by . ••
if
0 otherwise. (5)

The overall advantage of x over y, denoted A{x, y), is

Additivity is not essential for the explanation of given by
context-dependence. It is invoked because it provides
a good approximation in many situations and because
it permits a more parsimonious representation. Al- (6)

1184 MANAGEMENT SciENCE/Vo!. 39, No. 10, October 1993

 TVERSKY AND SIMONSON
Context-dependent Preferences
Thus, A{x, y) is the sum of the value differences along
the attributes on which x exceeds y. By additivity.
We assume that the disadvantage of x over y with
respect to attribute i, denoted D/ {x, y), is an increasing
convex function 6, of the corresponding advantage
Ai{y, x) satisfying 8,{t) ^ t. Thus, we assume that a
disadvantage along a given attribute has at least as much
impact as the respective advantage, and that disadvan-
tages grow at least as fast as the respective advantages.
For example, doubling a given advantage at least dou-
bles the corresponding disadvantage. These assump-
tions are consistent with the value function of prospect
theory, and the model of loss aversion in riskless choice
(Tversky and Kahneman 1991).
The overall disadvantage of x with respect to y, de-
noted D{x, y), is given by
D(x,y)= (7)
The relative advantage of x with respect to y, denoted
R{x, y) is defined by
(8)
If X has no advantage over y then R{x, y) = 0; if x
has an advantage over y but y has no advantage over
X then R(x, y) = 1. If 5,(f) = / for all i, then D(x, y)
= A(y, x) and R(x, y) 4- R{y, x) = 1; but if D(x. y)
> A{y, x), as suggested by loss aversion, then R(x, y)
+ R{y, x) < 1. R(x, y) can be viewed as a measure of
the relative strength of preference for x over y. Indeed,
it is closely related to the set-theoretical representation
of binary choice probability developed by Restle (1961)
and Tversky (1972).
We model the effect of the choice set S on the value
of X by adding the relative advantages of x over all other
options in the offered set whenever S includes more
than two options. Because all the context effects dis-
cussed in the preceding section involve multiple choice,
we do not introduce a local context component in the
binary case. Formally, let s be the number of elements
in S, and set . • *
2 K(x, y) if s> 2,
^(x,S)= '^' -, -,. (9)
0 if s ^ 2.
MANAGEMENT SciENCE/Vol. 39, No. 10, October 1993
Combining Equations ( l ) - ( 9 ) yields the following
componential context model:
(10)
where the second component vanishes when S contains
only two options.
This model incorporates two forms of additivity: ad-
ditivity across attributes and additivity across options.
The first assumption gives rise to a contingent weighting
model (Tversky et al. 1988) that describes the effect of
the background as a global change in the relative weight
of the attributes, This change may be viewed as an up-
dating process in which the decision maker adjusts the
weights in light of the tradeoffs implied by the back-
ground context. The effect of the local context is de-
scribed by the second component of the model that can
be interpreted as a touman:\ent in which x is matched
against each of the other options in S, and its overall
score is the sum of the results of these matches. As will
be shown, both components are required to account for
the observed data.
4. Explaining Context Effects
In this section we show how the componential context
model accounts for the phenomena described in §2. To
simplify the discussion we focus on the two-dimensional
case; the extension to the general case is straightforward.
Background Context :
Consider the configuration described in Figure 3, where
fl = A{x, y), b = A(y, x), a' = A{x', y'), b' = A(y', x').
a" = A(x", y"), b" = A(y^ x"), and a = b, a' < b',
a" > b". Note that these quantities refer to differences
in subjective value. We wish to show that x is preferred
to y, given background B' = {x',y'],buiy is preferred
to X, given background B" = {x", y"}. This is the back-
ground contrast effect illustrated in Table 1. Because
the target set S = {x, y} includes only two options;
Cs'{S) = x iff Vfl-(x,S)>VB'(y,S),
iff 0\a>0'2b (by additivity),
iff /3', > 02 (since fl = b),
which holds because the slope {b'/a') of the frontier
line in B' is steeper than that in the target set (b/a).
1185
 TVERSKY AND SIMONSON
Context-dependent Preferences

Figure 3 An Illustration of Background Tradeoff This analysis shows that a decision maker who is in-
different between x and y in a binary choice can prefer
y over x in a trinary choice if the relative advantage of
y over z exceeds that of x over z (i.e., if R{y, z)
> R{x, z)). If this pattern is common, we could obtain
x- . V Piy; X, z) > P{y; z), violating regularity. Note that
asymmetric dominance corresponds to the case where
; I. •
d = 0, sothatK(y, 2) = 1.
Extremeness Aversion . ' -
To account for extremeness aversion we make an es-
sential use of the convexity of the disadvantage func-
tions di, i = I, 2. Consider the options displayed in
Figure 5, let S = {x, y, 2}, and suppose a = c and
b" i
-
"•-.,
-'-•
x" b = d. Hence, v{x) = i?(y) = v{z), so x, y, and 2 are
a" pairwise equivalent. According to VM, therefore, the
options should also be equivalent in the trinary choice.
In contrast, we show that the present model implies
that the middle option will be more attractive in the
trinary choice. According to Equation (10),

An analogous argument shows that 0j < ^'{ because a+ a+b + + d)

the slope {b"/a") of the frontier line in B" is shallower b
than in the target set; see Figure 3. Hence, CB'{S) = y.
Thus, a shift from background B' to B" produces a cor-
c+ d
responding shift in preference from x to y.
_c + d + 5,(a + b) d+
Tradeoff Contrast
We turn now to the analysis of the local context. Con- Figure 4 An Illustration of TradeofI Conlrasl
sider the configuration displayed in Figure 4. Suppose
the background context is held constant, so we can set
0i = 02= 1, and ignore the background altogether. Let
^ ^ {^' y } ' 5 = {x, y. z], and assume a = b = c> d.
Hence, the decision maker is indifferent between x and 1
••'•1
- .

y in the binary case because a = c implies v{x) = v(y) *> 1 • . t

X
and V(x, R) = V(y, R). In the trinary case, however, 1 , .

d
• V{x, S) = v{x) + e[R{x, y) + R{x, z)]. . y

: -I'
c
To simphfy the analysis, assume constant loss aver-
sion, that is, D{x. y) = kA{y,x),k^l. It follows readily •
{••[

that V{y, S) > V{x, S) whenever ' • • .

b a
a+ b , •
-I-
c + ka b + kd a + kc a + b + kic + d) '
which holds since a = b = c> d and k ^ 1. • V ,

1186 MANAGEMENT SciENCE/Vol. 39, No. 10, October 1993

 TVERSKY AND SIMONSON
Context-dependent Preferences
Figure 5 An lilustration of Extremeness Aversion
* X
For simplicity, suppose 5, = 62 5. Hence, V(y, S)
> V(x, S) whenever
a +b
a + b + d{c + d) '
which holds because a = c. b = d, 5{t) S: t, and 5 is
strictly convex. An analogous argument yields V(y, S)
> V(z, S). Thus, the relative advantage component fa-
vors the middle alternative over the two extremes.
Finally, consider the same configuration, except that
5i is strictly convex, whereas §2 (0 = ' • I* follows readily
in this case that V{x, S) > V(y, S) > U(z, S). This
gives rise to polarization, namely a bias against z but
not against x.
5. Discussion ' simpler model. The systematic failure of this model, we
In contrast to the classical theory of choice that assumes
stable preferences and consistent values, there is a
growing body of evidence (see, e.g., Payne et al. 1992)
that supports an alternative conception according to
which preferences are often constructed—not merely
revealed—in the eUcitation process. These constructions
are contingent on the framing of the problem, the
method of eUcitation, and the context of choice. In this
article we describe how people's preferences are affected
MANAGEMENT ScreNCE/Vol. 39, No. 10, October 1993
by the set of options under consideration. The findings
of tradeoff contrast and extremeness aversion, which
violate the assumption of value maximization, have both
theoretical and practical implications. The possibility
that choice among candidates, job offers, consumer
products, and public policies can be manipulated by the
addition or deletion of "irrelevant" alternatives presents
a challenge to both theorists and practitioners.
We have developed in this article a context-dependent
model that explains the observed findings in terms of
two component processes: a contingent weighting
model that represents the effect of the background con-
text, and a binary comparison model that describes the
effect of the local context.' Like other descriptive models
of choice, the present account is at best approximate
and incomplete. In particular, it does not address the
various heuristics of choice and editing operations (e.g.,
eliminating common components and discarding non-
essential differences) that are commonly employed to
simplify the representation and the evaluation of op-
tions. We made no attempt to capture these complexi-
ties; we sought a simple mathematical model that is
consistent with tradeoff contrast and extremeness aver-
sion. The present model, however, is considerably more
complicated than the standard theory of value max-
imization.
It may seem paradoxical that a decision process driven
by an attempt to simplify choice and reduce computa-
tional complexity requires descriptive models that are
considerably more complicated than the corresponding
rational models. Unlike some normative models that
require enormous memory and difficult computations,
the principle of value maximization—as employed in
the classical theory of the consumer—is extremely sim-
ple: it only requires an ordering of the relevant options
with respect to preference. It is hard to conceive of a
suggest, is not due to its complexity, but rather to the
fact that people often do not have a global preference
order and, as a result, they use the context to identify
the most "attractive" option.
' An alternative approach to the modeltng of tradeoff contrast, which
does not assume addihvity and expresses multiple choice probability
in terms of binary advantages, has been developed by Lakshmi-Ratan
etal. (1991) and Marley{ 1991).
1187
 TVERSKY AND SIMONSON
Context-dependent Preferences

The analysis of context effects, in perception as well and, similarly, -- ' • ' • -i <
as in choice, provides numerous examples in which
people err by complicating rather than by simplifying P(x; y. 2) = P(x > y > 2) + P(;t > 2 > y).
the task; they often perform unnecessary computations We have tested the ranking condition in several studies of choice
and attend to irrelevant aspects of the situation under between products varying in price and quality, including paper towels,
study. For example, in order to judge which of two cir- microwave ovens, cameras, AM-FM cassette players, and binoculars
cles is bigger it seems simplest to evaluate the critical (Simonson and Tversky 1992). The ranking condition was satisfied
in every case, and the left-hand ratio above was, on average, more
figures and ignore the "irrelevant" circles in the back-
than twice as large as the right-hand ratio.
ground. Similarly, it appears that the easiest way to de-
We next show that, under the ranking condition, the betweenness
cide which of two options is preferable is to compare inequality holds whenever the ordering of triples is consistent with
them directly and ignore the other options. The fact VM, that is, the decision maker ranks x above y above z iff v(x)
that people do not behave in this manner indicates that >viy)>v(z).
many deparhjres from classical models of rational choice By the ranking condition, x | y | z implies
cannot be easily explained merely as an attempt to re-
P(2 > y > X) ^ P(y; 3:, z) Pjy > X > z) + P(v > z > I)
duce computational complexity.^ P(z>x> y) P(x; y, z) P(x > y > 2) + P(x > 2 > y) '

hence, by value maximization, and some algebra,

* This article has beneSted from discussions with Shmuel Sattath,
Yuval Rottensh-eich, and Peter Wakker The work was supported by P{y: X) P(2 > y > J:) -f P(v > 2 > x) + P(y > X > 2)
Grant 89-0064 from the Air Force Office of Scienhfic Research and P(x; y) P(2 > X > y) + P(x > 2 > y) -(- P(x > y > z)
by Grant SES-910935 from the National Science Foundation to the
first author.

which holds iff

Appendix: The Betweenness Inequality
In this appendix we show that the betweenness inequality, x|y|2 P(y;x,z)
P(y; X) ; X),
implies P(y; x) 2: P,{y; x), follows from VM provided the following
ranking condition is satisfied.
Suppose the decision maker rank orders each triple of options. Let as required.
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Accepted by Gregory W. Fischer; received October 22, 1991. This paper has been with the authors 6 { months for 1 revision,

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