who would pay more for a fragrance free laundry detergent how health information affects valuation abstractfragrance allergy is a lifelong condition and the probability of being affected increases with frequent exposure to fragrance currently fragrance free laundry detergents are not common in supermarkets we used a contingent valuation among austrian consumers in a within respondent treatment to estimate how willingness to pay is influenced by health information we found that higher income groups have a higher willingness to pay for fragrance free detergents informing consumers about health impacts substantially increases this difference our simulation shows that lower income groups benefit from health information only if low priced fragrance free detergents are available on the market

causes consequences and cures of myopic loss aversion an experimental investigation we examine in an experiment the causes consequences and possible cures of myopic loss aversion mla for investment behaviour under risk we find that both investment horizons and feedback frequency contribute almost equally to the effects of mla longer investment horizons and less frequent feedback lead to higher investments however when given the choice subjects prefer on average shorter investment horizons and more frequent feedback exploiting the status quo bias by setting a long investment horizon or low feedback frequency as a default turns out to be a successful behavioural intervention that increases investment levels

bidimensional vertical differentiation in markets where product quality is important more than one characteristic is usually necessary for producers to define product quality standard theory maintains that i in a duopoly there will be a quality leader no matter whether the product can incorporate one or two vertical attributes ii differentiation pertains only to one attribute by contrast in our set up there are also equilibria where the quality leader is better in two attributes and others where there is cross leadership namely a situation where each firm designs a product to dominate the other in one characteristic applications to minimum quality standards and tax subsidy on quality products are sketched showing spill over effects from one to the other quality dimension

on the nature of competition with differentiated products there is an old debate going back to bertrand 1883 and edgeworth 1925 about the fragility of market equilibrium when competition arises among a few sellers it was hotelling s belief that price instability vanishes when products are differentiated hotelling 1929 recently attention was drawn to the fact that even if product differentiation can weaken the forces leading to price instability it cannot eliminate completely the possibility of price cycles d aspremont et al 1979 the purpose of this paper is to show that vertical and horizontal product differentiation do not operate in the same manner a stable market outcome including an endogenous product specification arises more frequently with the former than with the latter horizontal product differentiation is rooted in taste differences more precisely the potential customers have heterogeneous preferences about the proportion in which the attributes of the product should be combined a wide range of substitute products can then survive in the same market simply because each of them combines the various attributes of the product in a proportion suitable to a particular segment of customers between two products in the range the level of some attributes is augmented while that of others is lowered each variety has its own circle of customers exactly as the inhabitants located around a particular shop form its potential market none the less competitors can raid these privileged market shares by adequate price cuts by contrast vertical product differentiation refers to a class of products which cohabit simultaneously on a given market even though customers agree on a unanimous ranking between them between two products in the range the level of all attributes is augmented or lowered the survival of a low quality product then rests on the seller s ability to sell it at a reduced price compensating thereby for the higher a priori attractiveness of a more desirable quality the seller of a low quality product will specialise in the segment of customers whose propensity to spend on the corresponding range of products is low either because they have relatively lower income or relatively less intensive preferences than other customers at the same time the seller of a high quality product will enjoy an absolute advantage over his competitor 2 interestingly it turns out that price and product competition does not lead to the same results in these two situations regarding the stability of the market equilibrium to stress the differences we have chosen to concentrate on two

market segmentation strategies of multiproduct firms we analyze a multiproduct duopoly and ask whether firms should offer general purpose products or tailor their offerings to fit specific consumer needs offering a targeted product has two effects utility increases for some consumers due to increased fit whereas utility decreases for others due to increased misfit previous work has not considered these two effects jointly and has therefore not been able to capture the tradeoff inherent in market segmentation we show that in addition to the degree of fit and misfit the intensity of competition and the fixed cost of offering an additional product determine firms market segmentation strategies extending product lines to target more narrowly defined consumer segments has been a favorite strategy of brand managers for years popular buzzwords like one on one marketing and niche marketing underline its importance in practice in this context we ask to what extent market segmentation is justified from a profitability point of view consider a competitive environment in which each firm can either offer a general purpose product or segment the market by offering products that are tailored to consumers needs while a consumer ceteris paribus prefers a product that is targeted at her own segment she would rather buy a general purpose product than a product that is targeted at another segment segmenting the market therefore has two effects first if a consumer s preferred product is offered she is better off because she is able to buy a product that exactly fits her needs we call this positive aspect of market segmentation fit second if the consumer s preferred product is not offered she is worse off because she ends up with a product that does not satisfy her needs at all this negative aspect of market segmentation is denoted as misfit

price competition in markets for dichotomous substitutes abstract the paper deals with price rivalry between two sellers of a differentiated good each firm occupies one of the two possible locations in the characteristics space considered this resembles real situations like the choice between dichotomous substitutes or examples coming from spatial economics the consumers population is partitioned in two groups according to preferences and the population density is constituted by two atoms transportation costs vary across consumers nevertheless the resulting firms demand functions share the continuity property at a non cooperative equilibrium the prices of the two goods differ and some consumers who rank highest the more popular brand find it convenient to purchase the less expensive alternative higher one firm concentration ratios are found to be consistent with lower equilibrium prices this last feature is verified comparing the non cooperative outcomes stemming from different original population densities

disappointment in decision making under uncertainty decision analysis requires that two equally desirable consequences should have the same utility and vice versa most analyses of financial decision making presume that two consequences with the same dollar outcome will be equally preferred however winning the top prize of 10 000 in a lottery may leave one much happier than receiving 10 000 as the lowest prize in a lottery this paper explores the implications of disappointment a psychological reaction caused by comparing the actual outcome of a lottery to one s prior expectations for decision making under uncertainty explicit recognition that decision makers may be paying a premium to avoid potential disappointment provides an interpretation for some known behavioral paradoxes and suggests that decision makers may be sensitive to the manner in which a lottery is resolved the concept of disappointment is integrated into utility theory in a prescriptive model

a theory of disappointment aversion an axiomatic model of preferences over lotteries is developed it is shown that this model is consistent with the allais paradox includes expected utility theory as a special case and is only one parameter beta richer than the expected utility model allais paradox type behavior is identified with positive values of beta preferences with positive beta are said to be disappointment averse it is shown that risk aversion implies disappointment aversion and that the arrow pratt measures of risk aversion can be generalized in a straight forward manner to the current framework copyright 1991 by the econometric society

costly search and mutual fund flows this paper studies the flows of funds into and out of equity mutual funds consumers base their fund purchase decisions on prior performance information but do so asymmetrically investing disproportionately more in funds that performed very well the prior period search costs seem to be an important determinant of fund flows high performance appears to be most salient for funds that exert higher marketing effort as measured by higher fees flows are directly related to the size of the fund s complex as well as the current media attention received by the fund which lower consumers search costs

the effect of myopia and loss aversion on risk taking an experimental test myopic loss aversion is the combination of a greater sensitivity to losses than to gains and a tendency to evaluate outcomes frequently two implications of myopic loss aversion are tested experimentally 1 investors who display myopic loss aversion will be more willing to accept risks if they evaluate their investments less often 2 if all payoffs are increased enough to eliminate losses investors will accept more risk in a task in which investors learn from experience both predictions are supported the investors who got the most frequent feedback and thus the most information took the least risk and earned the least money language en

an experiment on risk taking and evaluation periods does the period over which individuals evaluate outcomes influence their investment in risky assets results from this study show that the more frequently returns are evaluated the more risk averse investors will be the results are in line with the behavioral hypothesis of myopic loss aversion which assumes that people are myopic in evaluating outcomes over time and are more sensitive to losses than to gains the results have relevance for the equity premium puzzle and also for the marketing strategies of fund managers

towards sustainable city policy an economy environment technology nexus abstract environmental problems have become a worldwide concern for economists as is witnessed by the development of many theories and policies aimed at driving the economy towards a sustainable economy the problem becomes even greater if we discuss cities as recognised in many studies a high percentage of the world population lives in cities where quality of life and environmental concerns undermine all advantages associated with agglomeration economies the vast experience in terms of theoretical and empirical substance which has been built up around the theme of sustainable economy has only partially helped to generate a framework for an urban sustainable development the city is in fact by definition an artifact environment where well established concepts of environmental economics such as natural capital stock natural environment can hardly be transferred and applied in the way they are theoretically formulated the first scope of the paper is to offer an analytical framework for urban sustainable development to present the main economic concepts that are hidden under this label in particular different environments co exist in a city the natural the artifact and the social environment each of them generates positive and negative externalities for the city since each of them represents use advantages and use costs for a city if this is true then it is a plausible assumption that the integration of these three environments has to be supported with specific intervention policies the main aim of this paper is to highlight the possible intervention policies which may be developed to achieve a balanced sustainable development in terms of new policy principles that should govern the sustainable city

disappointment and dynamic consistency in choice under uncertainty the central proposition of disappointment theory is that an individual forms expectations about uncertain prospects and that if the actual consequence turns out to be worse than or better than that expectation the individual experiences a sensation of disappointment or elation generating a decrement or increment of utility which modifies the basic utility derived from the consequence by incorporating a simple disappointment elation function into a model of individual choice many observed violations of conventional expected utility axioms including violations of savage s sure thing principle and the isolation effect can be predicted and defended as rational and dynamically consistent behaviour

are teams prone to myopic loss aversion an experimental study on individual versus team investment behavior abstract myopic loss aversion mla has been found to have a persistent influence on individual decision making under risk in this paper i show that team decision making attenuates mla but that teams are also prone to mla

the effect of short term information on long term investment an experimental study abstract we present a multi trial experiment that extends the classic experiment of thaler et al 1997 by adding short term information to long term investment the allocation to the risky asset is reduced in the long term when we add short term information

market and welfare effects of second generation consumer oriented gm products we examine the economic effects of the introduction of consumer oriented genetically modified gm products into the food system by developing a model of heterogeneous consumers and producers that allows for vertical and horizontal differentiation between the products available to consumers the model facilitates the estimation of consumer and producer surpluses in the product utility and product net returns spaces results show that the introduction of consumer oriented gm products can change the relationship between gm and conventional and organic products from one of vertical to one of horizontal product differentiation and can enhance both economic welfare and the market acceptance and growth of agricultural biotechnology

horizontal and vertical differentiation the launhardt model we show how the spatial duopoly proposed by launhardt in 1885 where firms have access to different transportation technologies allows one to model in a simple and elegant way the two major types of product differentiation i e horizontal and vertical we consider the cases where firms are located near the market end points or near the market center launhardt s analysis of price determination is then extended by allowing firms to choose strategically their transportation rates subgame perfect nash equilibria involve minimum maximum vertical product differentiation when horizontal product differentiation is large small enough

monopolistic competition and general purpose products most models of monopolistic competition study the question of the optimal degree of product differentiation by looking at the number of firms that will locate in characteristics space this is somewhat restrictive the development of general purpose products means that the needs of quite heterogenous consumers can be satisfied with the same homogenous product the private and social incentives to produce general purpose products are studied in this paper within the circular road model of monopolistic competition the degree of general purposeness of a product is approximated by its per unit distance transport costs it is shown that there are strong forces leading the market to supply products whose transport costs are excessively low

myopic loss aversion information feedback vs investment flexibility we experimentally disentangle the effect of information feedback from the effect of investment flexibility on the investment behavior of a myopically loss averse investor our findings show that varying the information condition alone suffices to induce behavior that is in line with the hypothesis of myopic loss aversion

evaluation periods and asset prices in a market experiment we test whether the frequency of feedback information about the performance of an investment portfolio and the flexibility with which the investor can change it influence her risk attitude in markets in line with the prediction of myopic loss aversion benartzi and thaler 1995 we find that more information and more flexibility result in less risk taking market prices of risky assets are significantly higher if feedback frequency and decision flexibility are reduced this result supports the findings from individual decision making and shows that markets do not eliminate such behavior

myopic loss aversion disappointment aversion and the equity premium puzzle abstract this paper takes a close look at the behavioural finance explanations of the equity premium puzzle namely myopic loss aversion benartzi s thaler r h 1995 myopic loss aversion and the equity premium puzzle quarterly journal of economics 110 73 92 and disappointment aversion ang a bekaert g liu j 2005 why stocks may disappoint journal of financial economics 76 471 508 the paper proposes a simple specification of loss and disappointment aversion and brings these theories to the data the main conclusion is that a highly short sighted investment horizon is required for the historical equity premium to be explained by loss aversion while reasonable values for disappointment aversion are found also for long investment horizons stocks may not only lose in the short term but also disappoint in the long term

attitudes towards foreign products and international price competition in this paper we analyse price competition between firms established in different countries when demand is sensitive to national biases the intensity of this bias varies across consumers in this context trade arises because of the dispersion of consumers perception of the foreign good when consumer attitudes are diverse enough one firm concentrates on consumers with an intensive bias leaving room for the other which will serve consumers with a low bias next an increase in import tariff will unambiguously lead to a general increase in price since in equilibrium the domestic firm will decide to increase margins finally we identify conditions under which buy domestic campaigns increase local welfare and output attitudes envers les produits etrangers et concurrence internationale par les prix dans ce memoire les auteurs analysent la concurrence par les prix entre firmes etablies dans divers pays quand la demande est sensible a certaines preferences de caractere national l intensite de ce biais varie selon les consommateurs dans ce contexte le commerce international est possible parce que il y a une certaine dispersion de la perception du produit etranger par les consommateurs locaux quand les attitudes des consommateurs varient beaucoup une firme se concentre sur les consommateurs qui ont un biais important laissant assez d espace a l autre firme pour qu elle puisse servir les consommateurs qui ont un biais plus faible un accroissement du niveau des droits de douane entraine inevitablement un accroissement general du niveau de prix puisque en equilibre la firme locale va decider d augmenter ses marges on identifie les conditions qui vont faire que les campagnes d achat chez soi vont accroitre les niveaux de bien etre et de production dans l economie locale