discount rates and credit markets theory and evidence from rural india three models of credit markets 1 the permanent income model 2 upward sloping credit supply to individual borrowers and 3 constrained credit due to imperfect enforcement are tested using credit market data and an experimental study of individuals discount rates in south india the permanent income model is rejected by both the discount rate and the credit market data the discount rate data are consistent with either of the other two models while the credit market data are consistent with a combination of these two models other explanations are found to be insufficient to explain the results of this study

is probability theory relevant for uncertainty a post keynesian perspective stable url http links jstor org sici sici 0895 3309 28199124 295 3a1 3c129 3aiptrfu 3e2 0 co 3b2 gthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgsun feb 17 13 40 22 2008

the boundaries of loss aversion abstract in this article the authors propose some psychological principles to describe the boundaries of loss aversion a key idea is that exchange goods that are given up as intended do not exhibit loss aversion for example the authors propose that money given up in purchases is not generally subject to loss aversion the results of several experiments provide preliminary support for the hypotheses the authors find that consistent with prospect theory loss aversion provides a complete account of risk aversion for risks with equal probability to win or lose the authors propose boundaries for this result and suggest further tests of the model

an experimental and theoretical analysis of price matching refund policies abstract price matching refund policies or offers by firms to match competitor s prices are common in both consumer and industrial marketing much of the previous theoretical work in economics suggests that price matching refunds are associated with higher prices in contrast the trade press postulates that price matching policies are associated with lower prices given these inconsistent views regarding price matching policies the authors experimentally examine how consumers view and interpret such policies and then develop a model that incorporates these consumer interpretations as well as asymmetries across stores in the model the asymmetry across stores is the key to deriving the conditions under which a signaling equilibrium exists in the presence of price matching policies the critical point is that the competition reducing and price discrimination effects which seem to form the basis of most of the previous theoretical literature can be counteracted by the presence of differentiated firms

games with unique mixed strategy equilibria an experimental study abstract the results of an experiment studying the choices of subjects playing mixed extensions of three variants of simple 2 2 non constant sum strictly competitive games of the same form matching pennies are presented subjects exhibited a variety of behavioral adaptive learning strategies this heterogeneity of individual behavior produced aggregate dynamics whose estimated steady states are quite different from those predicted by the nash equilibria of those stage games with asymmetrical payoff functions the observed aggregative dynamics are well accounted for both by a quantal equilibrium model of mckelvey and palfrey and by a learning model of roth and erev journal of economic literature classification number c72

partial gift exchange in an experimental labor market impact of subject population differences productivity differences and effort requests on behavior we report a gift exchange experiment firms make wage offers workers respond by determining an effort level higher effort is more costly to workers and firms have no mechanism for punishing or rewarding workers consistent with the gift exchange hypothesis workers provide more effort at higher wages but undergraduates provide substantially less effort than mbas evidence suggests this results from differences in prior work experience firms nonbinding effort requests are at least partially honored resulting in increased overall effort for undergraduates although higher wages are relatively more costly for lower productivity firms workers do not provide them with more effort

designing price contracts for boundedly rational customers does the number of blocks matter when designing price contracts one of the major questions confronting managers is how many blocks there should be in the contract we investigate this question in the setting of a manufacturer retailer dyad facing a linear deterministic consumer demand theoretical marketing models predict that the manufacturer s profits rise dramatically when the number of blocks in the contract is increased from one to two because both channel efficiency and its share of channel profits increase however increasing the number of blocks to three yields no incremental profits we test these predictions experimentally and find that increasing the number of blocks from one to two raises channel efficiency but not the manufacturer s share of profits surprisingly having three blocks in the contract increases channel efficiency even further and also gives the manufacturer a slightly higher share of profits we show that these results can be explained by a quantal response equilibrium model in which the manufacturer accounts for noisy best response due to nonpecuniary payoff components in the retailer s utility we also show that the retailer is sensitive to the counterfactual profits it could have earned if it were charged a lower marginal price for earlier blocks in the multiple block contract

things that go bump in the mind how behavioral economics could invigorate marketing abstract in their article ho lim and camerer 2006 lead by example they identify principles from behavioral economics and rather than simply exhort their readers to pay attention they actually produce impressive demonstrations of how these principles can be applied to substantive marketing problems it is easy to argue that these ideas are important but it is more difficult to demonstrate that importance implicitly ho lim and camerer send a message of encouragement behaviorally realistic assumptions are not problems to be ignored they are opportunities formal models can capture psychologically realistic concerns together they should be the grist for the next generation of marketing mills

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

consumption self control by rationing purchase quantities of virtue and vice consumers attempts to control their unwanted consumption impulses influence many everyday purchases with broad implications for marketers pricing policies addressing theoreticians and practitioners alike this paper uses multiple empirical methods to show that consumers voluntarily and strategically ration their purchase quantities of goods that are likely to be consumed on impulse and that therefore may pose self control problems for example many regular smokers buy their cigarettes by the pack although they could easily afford to buy 10 pack cartons these smokers knowingly forgo sizable per unit savings from quantity discounts which they could realize if they bought cartons by rationing their purchase quantities they also self impose additional transactions costs on marginal consumption which makes excessive smoking overly difficult and costly such strategic self imposition of constraints is intuitively appealing yet theoretically problematic the marketing literature lacks operationalizations and empirical tests of such consumption self control strategies and of their managerial implications this paper provides experimental evidence of the operation of consumer self control and empirically illustrates its direct implications for the pricing of consumer goods moreover the paper develops a conceptual framework for the design of empirical tests of such self imposed constraints on consumption in consumer goods markets within matched pairs of products we distinguish relative virtue and vice goods whose preference ordering changes with whet her consumers evaluate immediate or delayed consumption consequences for example ignoring long term health effects many smokers prefer regular relative vice to light relative virtue cigarettes because they prefer the taste of the former however ignoring these short term taste differences the same smokers prefer light to regular cigarettes when they consider the long term health effects of smoking these preference orders can lead to dynamically inconsistent consumption choices by consumers whose tradeoffs between the immediate and delayed consequences of consumption depend on the time lag between purchase and consumption this creates a potential self control problem because these consumers will be tempted to over consume the vices they have in stock at home purchase quantity rationing helps them solve the self control problem by limiting their stock and hence their consumption opportunities such rationing implies that per purchase occasion vice consumers will be less likely than virtue consumers to buy larger quantities in response to unit price reductions such as quantity discounts we first test this prediction in two laboratory experiments we then examine the external validity of the results at the retail level with a field survey of quantity discounts and with a scanner data analysis of chain wide store level demand across a variety of different pairs of matched vice regular and virtue reduced fat calorie or caffeine etc product categories the analyses of these experimental field and scanner data provide strong convergent evidence of a characteristic crossover in demand schedules for relative vices and virtues for categories as diverse as among others potato chips chocolate chip cookies cream cheese beer soft drinks ice cream and frozen yogurt chewing gum coffee and beef andturkey bologna vice consumers demand increases less in response to price reductions than virtue consumers demand although their preferences are not generally weaker for vices than for virtues constraints on vice purchases are self imposed and strategic rather than driven by simple preferences we suggest that rationing their vice inventories at the point of purchase allows consumers to limit subsequent consumption as a result of purchase quantity rationing however vice buyers forgo savings from price reductions through quantity discounts effectively paying price premiums for the opportunity to engage in self control thus purchase quantity rationing vice consumers are relatively price in sensitive from a managerial and public policy perspective our findings should offer marketing practitioners in many consumer goods industries new opportunities to increase profits through segmentation and price discrimination based on consumer self control they can charge premium prices for small sizes of vices relative to the corresponding quantity discounts for virtues virtue consumers on the other hand will buy larger amounts even when quantity discounts are relatively shallow a key conceptual contribution of this paper lies in showing how marketing researchers can investigate a whole class of strategic self constraining consumer behaviors empirically moreover this research is the first to extend previous theoretical work on impulse control by empirically demonstrating its broader implications for marketing decision making

incorporating reference price effects into a theory of consumer choice although there has been a good deal of research on incorporating the effects of reference price formation into empirical models of consumer buying behavior little formal theoretical work had been undertaken to date this paper incorporates reference price effects into the traditional economic theory of consumer choice and examines the effects of reference price formation on the results of the traditional theory its marketing implications and the implications for empirical models which examine the effects of reference price formation on actual consumer behavior several implications of the theoretical model are empirically tested using weekly retail egg sales data from southern california this analysis indicates that reference price formation does have significant effects on consumer behavior furthermore these effects are asymmetric with consumers two and a half times more responsive to egg price increases that are in excess of the reference price than they are to comparable egg price decreases

modeling loss aversion and reference dependence effects on brand choice based upon a recently developed multiattribute generalization of prospect theory s value function tversky and kahneman 1991 we argue that consumer choice is influenced by the position of brands relative to multiattribute reference points and that consumers weigh losses from a reference point more than equivalent sized gains loss aversion we sketch implications of this model for understanding brand choice we develop a multinomial logit formulation of a reference dependent choice model calibrating it using scanner data in addition to providing better fit in both estimation and forecast periods than a standard multinomial logit model the model s coefficients demonstrate significant loss aversion as hypothesized we also discuss the implications of a reference dependent view of consumer choice for modeling brand choice demonstrate that loss aversion can account for asymmetric responses to changes in product characteristics and examine other implications for competitive strategy

the effects of macroeconomic stability on foreign trade an analysis for spain 1986 2000 two main factors underlie the rebirth of interest in the study of the influence of the real exchange rate on trade the reduction of its volatility and the current trend towards price stability the objective of this study is to analyse the effects of the process of nominal convergence required of the european member states for the fulfilment of monetary integration on foreign trade flows the case of spain which is especially interesting in this context is studied for the period 1986 to 2000 the results of estimating the aggregate functions of the export and import of goods shows how macroeconomic stability has altered the behaviour of trade with respect to the two basic determinants income and prices how it has caused a significant structural change in the real exchange rate and finally how it has laid the explanatory bases for transactions in the twenty first century with the single currency the euro

coordination and learning behavior in large groups with asymmetric players we study a class of large group noncooperative iterated market entry games with complete information binary choices and asymmetric players in which the incentive of each player to enter the market decreases the larger the number of entrants experimental results from two different studies show remarkable coordination on the aggregate level which is accounted for successfully by the nash equilibrium solution the equilibrium solution is less successful in accounting for the differences among types of players with differential entry costs or differences among players of the same type rather the behavioral patterns observed on the aggregate level are accounted for by a reinforcement based learning model postulating an initial distribution of individual cutoff points these cutoff points are assumed to change over time at a decreasing rate as a joint function of the decision and outcome of the preceding period journal of economic literature classification numbers c7 d5 d8 2002 elsevier science usa

price dispersion in the lab and on the internet theory and evidence price dispersion is ubiquitous in settings that closely approximate textbook bertrand competition we show that only a little bounded rationality among sellers is needed to rationalize such dispersion a variety of statistical tests based on datasets from two independent laboratory experiments and structural estimates of the parameters of our models suggest that bounded rationality based theories of price dispersion organize the data remarkably well evidence is also presented to suggest that the models are consistent with data from a leading internet price comparison site

is a plumber or a new financial architect needed to end global international liquidity problems how one interprets volatility in the international financial markets and therefore chooses a policy stance regarding these markets depend on the underlying economic theory that one explicitly or implicitly utilizes to explain the role of financial markets in a market oriented entrepreneurial economy there are two major alternative theories of financial markets 1 the classical efficient market theory hereafter emt and 2 keynes s liquidity preference theory hereafter lpt each produces a different set of policy prescriptions emt advocates call for a liquidity plumber to patch up some short run stresses in today s efficient international financial flow system lpt proponents believe that the current system is structurally flawed consequently it will require an architect to build a new international financial structure on more solid foundations

using game theory to model competition the article is an exposition of the basic concepts of noncooperative game theory and their application to advertising product and price competition

decision making over time and under uncertainty a common approach this paper considers a number of parallels between risky and intertemporal choice we begin by demonstrating a one to one correspondence between the behavioral violations of the respective normative theories for the two domains i e expected utility and discounted utility models we argue that such violations or preference reversals are broadly consistent with three propositions about the weight that an attribute receives in both types of multiattribute choice specifically it appears that 1 if we add a constant to all values of an attribute then that attribute becomes less important 2 if we proportionately increase all values of an attribute or if we change the sign of an attribute from positive to negative then that attribute becomes more important the generality of these propositions as well as the constraints they would impose on separable representations of multiattribute preferences is discussed

features of experimentally observed bounded rationality abstract on the basis of experimental evidence reported in the literature the paper draws conclusions about the bounded rationality exhibited by human economic behaviour among the topics discussed are presentation effects caused by superficial analysis strategic reasoning and strategy construction based on reciprocity and fairness avoidance of circular concepts in step by step strategic reasoning ex post rationality and learning direction theory presence of both adaptive and analytic approaches to repeated decision tasks and the absence of quantitative expectations and optimization in typical repeated game strategies

empirical generalizations from reference price research considerable theoretical justification for consumers use of psychological reference points exists from the research literature from a managerial perspective one of the most important applications of this concept is reference price an internal standard against which observed prices are compared in this paper we propose three empirical generalizations that are well supported in the marketing literature first there is ample evidence that consumers use reference prices in making brand choices second the empirical results on reference pricing also support the generalization that consumers rely on past prices as part of the reference price formation process third consistent with other research on loss aversion consumers have been found to be more sensitive to losses i e observed prices higher than reference prices than gains we also propose topics for further research on reference prices

keynesian economic policies for the new millennium in this paper we outline an approach to economic policy in which there is an emphasis on the need for both demand side and supply side policies to secure full employment our approach can be considered keynesian in the sense that its policy implications arise from the perception of the role of aggregate demand in setting the level of economic activity and the lack of automatic forces leading a market economy to full employment our conception of the operations of a market economy is briefly outlined in section 2 this we further elaborate upon in section 3 by considering the constraints on achieving full employment that operate in a market economy this leads into section 4 in which we outline and analyse the nature of keynesian policies relating both to the demand and supply side of the economy the final main section 5 considers some of the constraints and ways of overcoming them on the implementation of the type of keynesian policies which we are advocating there are two key elements of keynes 1936 on which we draw the first is the contention that a laissez faire market economy will not usually generate full employment the obstacles to the achievement of full employment are not some imperfections like monopolistic competition or trade union activity which could potentially be removed through government action cf shapiro 1996 it is rather that a laissez faire market economy would exhibit elements of instability and does not usually generate a level of aggregate demand consistent with full employment the second is that a less unequal distribution of market power income and wealth is another desirable goal in its own right and a vehicle for increasing general prosperity as keynes 1936 remarked the outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes p 372

the effects of government expenditure on imports in the eurozone reconsidered evidence from panel data abstractthis study examines the impact of government expenditure on imports the empirical analysis is based on annual data of the euro area countries for the period 1995 2015 we employ econometric methods that mitigate heterogeneity and cross sectional dependence we provide empirical indications that the components of expenditure have different impact on imports demand the findings of this study indicate that the import context of government expenditure is lower than the import context of others expenditure components finally we find that an increase in government expenditure leads to an increase in imports this implies that ceteris paribus that it can lead to a deterioration of the trade balance

anomalous behavior in a traveler s dilemma the notion of a nash equilibrium has joined supply and demand as one of the two or three techniques that economists instinctively try to use first in the analysis of economic interactions moreover the nash equilibrium and closely related game theoretic concepts are being widely applied in other social sciences and even in biology where evolutionary stability often selects a subset of the nash equilibria many people are uneasy about the stark predictions of the nash equilibrium in some contexts where the extreme rationality assumptions seem implausible kaushik basu s 1994 traveler s dilemma is a particularly convincing example of a case where the unrelenting logic of game theory is at odds with intuitive notions about human behavior the story associated with the dilemma is that two travelers purchase identical antiques while on a tropical vacation their luggage is lost on the return trip and the airline asks them to make independent claims for compensation in anticipation of excessive claims the airline representative announces

context dependent preferences the 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 intuitive appeal there is a growing body of data that is inconsistent with this theory in particular the relative 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 p

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

a note on the estimation of import trade demand functions this paper compares six alternative methods of computing the import demand function we use a sample of 33 countries from 1995 1 to 2016 3 and brand new information on import contents made available by wiod preferred models take into account the separate effects of each final demand component contrary to some recent studies we observe that private expenditure is the main driver of import variations

modeling the psychology of consumer and firm behavior with behavioral economics abstract marketing is an applied science that tries to explain and influence how firms and consumers behave in markets marketing models are usually applications of standard economic theories which rely on strong assumptions of rationality of consumers and firms behavioral economics explores the implications of the limits of rationality with the goal of making economic theories more plausible by explaining and predicting behavior more accurately while maintaining formal power this article reviews six behavioral economics models that are useful to marketing three models generalize standard preference structures to allow for sensitivity to reference points and loss aversion social preferences toward outcomes of others and preference for instant gratification the other three models generalize the concept of game theoretic equilibrium allowing decision makers to make mistakes encounter limits on the depth of strategic thinking and equilibrate by learning from feedback the authors also discuss a sp

are grains of sand in the wheels of international finance sufficient to do the job when boulders are often required this paper criticises the effectiveness of a tobin tax in acting as a deterrent to short run round trip speculation on exchange rate movements it is demonstrated that given the usual magnitude of a proposed tobin tax the deterrent to short term speculation will be negligible and in all likelihood smaller than the deterrent to real trade flows and arbitrage activities finally an alternative proposal for preventing currency speculations while creating incentives for global full employment based on keynes s 1940s writings is proposed

choice and procrastination author s o donoghue ted rabin matthew abstract recent models of procrastination due to self control problems assume that a procrastinator considers just one option and is unaware of her self control problems we develop a model where a person chooses from a menu of options and is partially aware of her self control problems this menu model replicates earlier results and generates new ones a person might forego completing an attractive option because she plans to complete a more attractive but never to be completed option hence providing a non procrastinator additional options can induce procrastination and a person may procrastinate worse pursuing important goals than unimportant ones

discount rates inferred from decisions an experimental study two hundred and four students of economics and finance participated in an intertemporal choice experiment which manipulated three dimensions in a 4 4 4 factorial design scenario postponing a receipt postponing a payment expediting a receipt expediting a payment time delay 0 5 1 2 and 4 years and size of cashflow 40 200 1000 and 5000 individual discount rates were inferred from the responses and then used to test competitively four hypotheses regarding the behavior of discount rates the classical hypothesis asserting that the discount rate is uniform across scenarios time delays and sums of cashflow was flatly rejected a market segmentation approach was found lacking the results support an implicit risk hypothesis according to which delayed consequences are associated with an implicit risk value and an added compensation hypothesis which asserts that individuals require compensation for a change in their financial position

choice based on reasons the case of attraction and compromise effects building on previous research this article proposes that choice behavior under preference uncertainty may be easier to explain by assuming that consumers select the alternative supported by the best reasons this approach provides an explanation for the so called attraction effect and leads to the prediction of a compromise effect consistent with the hypotheses the results indicate that 1 brands tend to gain share when they become compromise alternatives in a choice set 2 attraction and compromise effects tend to be stronger among subjects who expect to justify their decisions to others and 3 selections of dominating and compromise brands are associated with more elaborate and difficult decisions

an empirical analysis of internal and external reference prices using scanner data single source yogurt data are used to examine whether both internal and external reference prices affect purchase decisions internal reference prices are memory resident prices based on actual fair or other price concepts external reference prices are observed stimuli such as regular prices that stores may display along with a sale price for comparability discrete choice models with variables representing the two types of reference prices are estimated and both types of variables are found to have significant effects on purchase probabilities this suggests that consumers may use multiple reference points in evaluating price in purchase decisions in addition a model using an indicator of a sale price discount explains purchase probabilities as well as one that models the actual discount which suggests that consumers may be reacting to the indication of savings rather than to the amount of the discount

comment managing channel profits comment in a recent paper in this journal jeuland and shugan jeuland a s shugan 1983 managing channel profits marketing sci 2 summer 239 272 proposed a quantity discount schedule as a way of coordinating a channel as they put it on p 253 of their paper a quantity discount schedule which would fix the retailer s and hence the manufacturer s profits to some fixed linear function of total channel profits would lead the channel to maximize profits the purpose of this note is to show that a quantity discount schedule is not necessary for channel coordination

the impact of reference price effects on the profitability of price promotions this paper investigates the impact of reference price effects on retailer price promotions and describes why these effects can make promoting profitable first we analyze the profit impact of reference price effects generated by a single period of promotion the promotion can increase profit if the gain that these effects create in the promotion period outweighs the loss they create in future periods we then describe how retailers can estimate the optimal strategy of recurring promotions that maximizes profits from reference price effects over a time horizon examples of such strategies are presented for a retailer selling a national brand of peanut butter we obtain insights into how promotion prices timing and profits are affected by changes in costs interest rates consumers reactions to reference price effects and error in estimates used in the model the retailer s optimal reaction to a trade deal is also examined this strategy involves a phase of increased promotion activity sandwiched between phases of decreased activity we explain these results using the effects described in the single period model

choosing the wrong calling plan ignorance and learning when a firm offers several tariff options to its customers the possibility arises that they will make an ex post mistake in tariff choice this occurs since consumers cannot commit to a certain purchase level at the time they subscribe to the service option and thus they might find out later that a different choice of tariff could have resulted in a lower payment for their actual level of consumption this is a common feature of increasingly important subscriptions markets in which buyers and sellers maintain long term nonanonymous relations and where learning induces interesting dynamics on the one hand buyers may learn their taste over time thus making the right choice as times goes by on the other hand the seller may design options to identify the type of each buyer and if possible to extract a higher proportion of their consumer surplus by offering tariff options that are better tailored to the profile of the consumer this paper focuses on the first type of learning in turn i document buyer behavior in a subscriptions market using data from a tariff experiment run by south central bell scb in kentucky during the second half of 1986 the most frequently studied case of subscriptions markets is the choice among optional calling plans ocps in the telephone industry this paper shows that contrary to the conven

two cases for sand in the wheels of international finance the incompatibility of pegged exchange rates international capital mobility and national monetary autonomy is a basic postulate of open economy macroeconomies in the present environment of high capital mobility and political uncertainty even the possibility that governments may utilize their policy autonomy can defeat efforts to peg the exchange rate this leaves two possibilities one is to fix the exchange rate irrevocably through monetary unification the other is to live with floating rates either way a case can be made for throwing sand in the wheels of international finance where monetary unification is not an option this is a may to make distinct national currencies tolerable and international money and capital markets compatible with modest national autonomy in monetary and macroeconomic policy for eu counties striving to create a monetary union it is the only politically and economically feasible way of completing the transition to stage iii of the maastricht process

overconfidence and excess entry an experimental approach psychological studies show that most people are overconfident about their own relative abilities and unreasonably optimistic about their futures e g shelly e taylor and j d brown 1988 neil d weinstein 1980 when assessing their position in a distribution of peers on almost any positive trait like driving ability ola svenson 1981 income prospects or longevity a vast majority of people say they are above the average although of course only half can be if the trait is symmetrically distributed this paper explores whether optimistic biases could plausibly and predictably influence economic behavior in one particular setting entry into competitive games or markets many empirical studies show that most new businesses fail within a few years for example using plant level data from the u s census of manufacturers spanning 1963 1982 timothy dunne et al 1988 estimated that 61 5 percent of all entrants exited within five years and 79 6 percent exited within 10 years most of these exits are failures see also dunne et al 1989a 1989b d shapiro and r s khemani 1987

aggregate imports and expenditure components in the uk an empirical analysis this paper examines the long run relationship between uk aggregate imports and the macroeconomic components of final expenditure using the johansen multivariate cointegration analysis it is found that there are significant differences between the long run elasticities of import demand with respect to the different components of final expenditure over the period 1972 to 1990 an error correction model is proposed for short run forecasting of uk aggregate imports the short run model appears to track the data well

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

incentives for procrastinators we examine how principals should design incentives to induce time inconsistent procrastinating agents to complete tasks efficiently delay is costly to the principal but the agent faces stochastic costs of completing the task and efficiency requires waiting when costs are high if the principal knows the task cost distribution she can always achieve first best efficiency if the agent has private information the principal can induce first best efficiency for time consistent agents but often cannot for procrastinators we show that second best optimal incentives for procrastinators typically involve an increasing punishment for delay as time passes

the functional form of the aggregate import demand equation italy 1960 1980 abstract the authors investigate the functional form of the aggregate import demand equation in italy by using the box and cox transformation and a non linear full information maximum likelihood procedure instead of the two step procedure usually followed

the disposition effect in securities trading an experimental analysis the disposition effect is the tendency to sell assets that have gained value winners and keep assets that have lost value losers disposition effects can be explained by the two features of prospect theory the idea that people value gains and losses relative to a reference point the initial purchase price of shares and the tendency to seek risk when faced with possible losses and avoid risk when a certain gain is possible our experiments were designed to see if subjects would exhibit disposition effects subjects bought and sold shares in six risky assets asset prices fluctuated in each period contrary to bayesian optimization subjects did tend to sell winners and keep losers when the shares were automatically sold after each period the disposition effect was greatly reduced

three cheers psychological theoretical empirical for loss aversion abstract this note emphasizes the special role of prospect theory in drawing psychophysical considerations into theories of decision making with respect to risk an example of such a consideration is the dependence of outcome value on a reference point and the increased sensitivity of loss relative to gain i e loss aversion loss aversion can explain the st petersburg paradox without requiring concave utility it has the correct psychological foundation it is theoretically useful and it is a parsimonious principle that can explain many puzzles a few open questions are whether loss aversion is a stable feature of preference whether it is an expression of fear and what are its properties

labor supply of new york city cabdrivers one day at a time life cycle models of labor supply predict a positive relationship between hours supplied and transitory changes in wages because such changes have virtually no effect on life cycle wealth previous attempts to test this hypothesis empirically with time series data have not been supportive estimated elasticities are typically negative or nonsignificant such analyses however are vulnerable to measurement error and other estimation problems we use data on daily observations of wages and hours for new york city cab drivers to estimate the supply response to transitory fluctuations in wages cab drivers decide daily how many hours to supply and face wages that are positively correlated within days but largely uncorrelated between days using these data our central finding is that wage elasticities are persistently negative from 5 to 1 in three different samples even after correcting for measurement error using instrumental variables these negative wage elasticities challenge the notion that cab drivers trade off labor and leisure at different points in time and question the empirical adequacy of life cycle formulations of labor supply

how psychological should economic and marketing models be abstract the authors discuss the potential of making the recently developed behavioral economics models even more psychological by 1 increasing their context specificity 2 allowing different people to have different model parameters and 3 capturing the underlying psychological processes more explicitly they show that some of these models already make room for understanding context specificity and heterogeneity and they discuss new ways to enrich the models along those two dimensions the task of adding process details is more challenging in simple mathematical forms because these models must serve as building blocks for aggregate market models

learning mixed equilibria we study learning processes for finite strategic form games in which players use the history of past play to forecast play in the current period in a generalization of fictitious play we assume only that players asymptotically choose best responses to the historical frequencies of opponents past play this implies that if the stage game strategies converge the limit is a nash equilibrium in the basic model plays seems unlikely to converge to a mixed strategy equilibrium but such convergence is natural when the stage game is perturbed in the manner of harsanyi s purification theorem journal of economic literature classification number c72

game theory and empirical generalizations concerning competitive promotions this paper offers the generalization that competitive promotions are mixed strategies first an empirical regularity is established that promotions are independent across competitors this regularity is then elaborated on in the context of a promotion game the promotion game is linked to observable outcomes and a classification of possible situations is developed in particular the classification includes the prisoners dilemma battle of the sexes and marketing models of promotion competition the evidence for the generalization comes from a variety of product markets spanning trade promotions retail price reductions and retail promotions such as advertised specials the product markets include coffee baby diapers toilet tissue saltines dishwashing fluid ketchup and detergents among others the data in some cases were from cooperating grocery chains and in others from iri scanner panels the evidence from extant research and from new analyses is presented each situation is identified as be

the ussr before the fall how poor and why this essay appraises the scholarly findings on the level of consumption and output in the ussr compared with that in the west such aggregative calculations are onerous for any country and not very surprisingly have encountered particular difficulty where such a strange society as soviet communism has been in question predictably the results have been controversial but properly viewed they still provide illuminating perspective on the extraordinary events that have lately transpired in the ussr