bidding behavior in descending and ascending auctions this research examines how individual differences and institutional practices influence consumer bidding in auctions bidders may be motivated by different goals e g thrill of winning the item with minimal attention to what they pay for it versus prudence winning the item at a price at or below its perceived value also innate or auctioneer induced differences may exist in the precision and salience of bidder cognitions about the item s value we report two studies on how these motivational and cognitive factors influence bids in descending and ascending auctions respectively each study also manipulated a situational variable wait time at each price step the two auctions realized different average prices for the same item set average bids were higher in the descending versus ascending auction in several study conditions in both auction formats bidders primed with thrill versus prudence bid higher but more precise and or salient values attenuated this goal effect among other results in the descending auction longer wait times elicited higher bids from bidders primed with thrill but not prudence in the ascending auction longer wait times produced lower bids for bidders primed with prudence but not thrill these findings on consumer bidding behavior have practical implications for auction design

nostalgia weakens the desire for money nostalgia has a strong presence in the marketing of goods and services the current research asked whether its effectiveness is driven by its weakening of the desire for money six experiments demonstrated that feeling nostalgic decreased people s desire for money using multiple operationalizations of desire for money nostalgia vs neutral condition participants were willing to pay more for products experiment 1 parted with more money but not more time experiment 2 valued money less experiments 3 and 4 were willing to put less effort into obtaining money experiment 5 and drew smaller coins experiment 6 process evidence indicated that nostalgia s weakening of the desire for money was due to its capacity to foster social connectedness experiments 5 and 6 implications for price sensitivity willingness to pay consumer spending and donation behavior are discussed nostalgia may be so commonly used in marketing because it encourages consumers to part with their money

unfixed resources perceived costs consumption and the accessible account effect consumption depletes one s available resources but consumers may be unaware of the total resources available for consumption and therefore be influenced by the temporary accessibility of resource accounts consistent with this possibility consumers in four experiments perceived a unit of consumption to be smaller and consequently consumed more when large resource accounts of money calories or time e g the money in their savings account were made temporarily accessible compared with when small resource accounts were made temporarily accessible e g the money in their wallet manipulating the cognitive accessibility of resources available for consumption influences both subjective judgment and behavior

repeated rounds with price feedback in experimental auction valuation an adversarial collaboration it is generally thought that market outcomes are improved with the provision of market information as a result the use of repeated rounds with price feedback has become standard practice in the applied experimental auction valuation literature we conducted two experiments to determine how rationally subjects behave with and without price feedback in a second price auction results from an auction for lotteries show that subjects exposed to price feedback are significantly more likely to commit preference reversals however this irrationality diminishes in later rounds results from an induced value auction indicate that price feedback caused greater deviations from the nash equilibrium bidding strategy our results suggest that while bidding on the same item repeatedly improves auction outcomes this improvement is not the result of price feedback

implications of bid design and willingness to pay distribution for starting point bias in double bounded dichotomous choice contingent valuation surveys we examine starting point bias in double bounded dichotomous choice contingent valuation surveys we investigate 1 the seriousness of the biases for the location and scale parameters of the willingness to pay wtp in the presence of starting point bias 2 whether or not these biases depend on the distribution of wtp and on the bid design and 3 how well a commonly used diagnostic for starting point bias a test of the null that bid set dummies entered in the right hand side of the wtp model are jointly equal to zero performs under various circumstances monte carlo simulations suggest that the effect of ignoring starting point bias depends on the bid design and on the true distribution of wtp a well balanced symmetric bid design may result in very modest biases even when the anchoring mechanism is very strong the power of bid set dummies in detecting starting point bias is low they tend to account for misspecifications in the distribution assumed by the researcher for the latent wtp rather than capturing the presence of starting point bias

modelling heterogeneity in response behaviour towards a sequence of discrete choice questions a probabilistic decision process model there is a growing body of evidence in the non market valuation literature suggesting that responses to a sequence of discrete choice questions tend to violate the assumptions typically made by analysts regarding independence of responses and stability of preferences decision processes or heuristics such as value learning and strategic misrepresentation have been offered as explanations for these results while a few studies have tested these heuristics as competing hypotheses none has investigated the possibility that each explains the response behaviour of a subgroup of the population in this paper we make a contribution towards addressing this research gap by presenting a probabilistic decision process model designed to estimate the proportion of respondents employing defined heuristics we demonstrate the model on binary and multinomial choice data sources and find three distinct types of response behaviour the results suggest that accounting for heterogeneity in response behaviour may be a better way forward than attempting to identify a single heuristic to explain the behaviour of all respondents

limited rationality and strategic interaction the impact of the strategic environment on nominal inertia much evidence suggests that people are heterogeneous with regard to their abilities to make rational forward looking decisions this raises the question as to when the rational types are decisive for aggregate outcomes and when the boundedly rational types shape aggregate results we examine this question in the context of a long standing and important economic problem the adjustment of nominal prices after an anticipated monetary shock our experiments suggest that two types of bounded rationality money illusion and anchoring are important behavioral forces behind nominal inertia however depending on the strategic environment bounded rationality has vastly different effects on aggregate price adjustment if agents actions are strategic substitutes adjustment to the new equilibrium is extremely quick whereas under strategic complementarity adjustment is both very slow and associated with relatively large real effects this adjustment difference is driven by price expectations which are very flexible and forward looking under substitutability but adaptive and sticky under complementarity moreover subjects expectations are also considerably more rational under substitutability

randomization vs selection how to choose in the absence of preference decision makers sometimes have to choose between alternative options about which they have no preference either they judge the options equally valuable indifference or they have no judgment about their relative value noncomparability choosing randomly is generally considered a natural way to deal with such situations this paper shows however that systematic randomization between noncomparable options may lead to a chain of decisions resulting in monetary losses a money pump furthermore these losses can be avoided by deliberately selecting one of the noncomparable options instead of randomizing thus randomization among noncomparable options is costly relative to deliberate selection on the other hand randomization among indifferent options is costless relative to deliberate selection

valuing mortality risk in kuwait stated preference with a new consistency test we report stated preference estimates of the value per statistical life vsl for kuwaiti citizens obtained using an innovative test to identify respondents whose survey responses are consistent with economic theory the consistency test requires that an individual report strictly positive willingness to pay wtp for mortality risk reduction and that his responses to binary choice valuation questions for two risk reductions be consistent with the theoretical requirement that wtp is less than but close to proportional to the change in risk reduction our estimates of vsl 18 32 million are approximately two to four times larger than values accepted for the united states these values may reflect cultural factors as well as the substantially larger disposable income of kuwaiti citizens

ambiguity aversion and comparative ignorance decisions under uncertainty depend not only on the degree of uncertainty but also on its source as illustrated by ellsberg s observation of ambiguity aversion in this article we propose the comparative ignorance hypothesis according to which ambiguity aversion is produced by a comparison with less ambiguous events or with more knowledgeable individuals this hypothesis is supported in a series of studies showing that ambiguity aversion present in a comparative context in which a person evaluates both clear and vague prospects seems to disappear in a noncomparative context in which a person evaluates only one of these prospects in isolation

do practice rounds affect experimental auction results researchers use practice rounds to familiarize participants with experimental auction mechanisms we find a positive correlation between practice bids and bids submitted in later rounds we consider three explanations for this correlation a behavioral anchoring effect a tendency for some auction participants to be more free spending and misconception of the experimental auction s demand revealing qualities

bidding frenzy speed of competitor reaction and willingness to pay in auctions this research examines how the intensity of the dynamic competitive interaction with other bidders in ascending auctions influences consumers willingness to pay wtp for auctioned products it focuses on one important aspect of this interaction the speed of competitor reaction the key hypothesis is that having one s own bids reciprocated by competing bidders more quickly increases one s wtp in an auction evidence from five experiments demonstrates this effect and pinpoints the essential aspects of the psychological mechanism that underlies it in particular the effect of speed of competitor reaction on bidding behavior 1 is serially mediated by the perception that the auction is more intensely competitive and by a greater desire to win 2 is distinct from the effects of time pressure and of the auction s duration or overall rate of progression 3 is not driven by inferences about the auctioned product s market value 4 is not qualified by the number of competing bidders nor due to any inferences about the latter and 5 hinges on direct competitive interaction with other human bidders

zero as a special price the true value of free products when faced with a choice of selecting one of several available products or possibly buying nothing according to standard theoretical perspectives people will choose the option with the highest cost benefit difference however we propose that decisions about free zero price products differ in that people do not simply subtract costs from benefits but instead they perceive the benefits associated with free products as higher we test this proposal by contrasting demand for two products across conditions that maintain the price difference between the goods but vary the prices such that the cheaper good in the set is priced at either a low positive or zero price in contrast with a standard cost benefit perspective in the zero price condition dramatically more participants choose the cheaper option whereas dramatically fewer participants choose the more expensive option thus people appear to act as if zero pricing of a good not only decreases its cost but also adds to its benefits after documenting this basic effect we propose and test several psychological antecedents of the effect including social norms mapping difficulty and affect affect emerges as the most likely account for the effect

towards a fair constructive and consistent criticism of all valuation languages comment on kallis et al 2013 we provide critical notes to the paper by kallis et al 2013 on monetary valuation we evaluate the four criteria they propose for assessing valuation studies we argue that no clear distinction is made between monetary valuation and pricing instruments the selected criteria are more relevant to assessing policy than monetary valuation the examples provided are not representative of the diversity of valuation studies encountered in the literature moreover no clear examples are provided of where valuation and associated cost benefit analysis of environmental policy go wrong we plea for a more fair constructive and consistent criticism of all valuation languages and offer relevant issues for consideration

interval bidding in a distribution elicitation format interval bidding allows people to report a range of values for a non market good herein we allow people to choose their distribution over this range endogenously we consider a multiplicative error model explaining the willingness to pay wtp which is estimated using a feasible generalized least squares estimator we apply our framework to a representative sample of the french population who were asked about the valuation of a bear conservation programme we find that most participants prefer stating their wtp as a range rather than a point but the shape of the distribution greatly varies across people our results support the use of the interval bidding with endogenous distribution approach in valuation studies

nudging the poor and the rich a field study on the distributional effects of green electricity defaults abstract choice defaults are an increasingly popular public policy tool yet there is little knowledge of the distributional consequences of such nudges for different groups in society we report results from an elicitation study in the residential electricity market in switzerland in which we contrast consumers actual contract choices under an existing default regime with the same consumers active choices in a survey presenting the same choice set without any default we find that the default is successful at curbing greenhouse gas emissions but it leads poorer households to pay more for their electricity consumption than they would want to while leaving a significant willingness to pay for green electricity by richer households untapped

from rational actor to efficient complexity manager exorcising the ghost of homo economicus with a unified synthesis of cognition research it is now commonplace to note that economics canonical model of humans as rational self interested utility maximizers homo economicus is both descriptively misleading and often insufficiently predictive however certain outdated assumptions tied to homo economicus persist often influencing discourse and research design even in sustainability oriented fields we argue this ghost of homo economicus endures because the diversity of findings that confound the canonical model has surfaced across multiple behavioral and cognitive sciences each with its own terminology and focus area as such a unified accessible synthesis of this new information has yet to emerge in this paper we review recent insights from across the behavioral and cognitive sciences and propose an efficient complexity manager ecm model homo efficens as the best synthesizing option the crux of this model is that our species works within biological limits to efficiently filter massive environmental complexity this is achieved largely through analogical or case based reasoning we explain this synthesized model using a series of accessible metaphors finally we speculate on how this model may enrich future sustainable development research insofar as it points to fruitful units of analysis can stimulate methodological innovation and provide a more explicit theoretical foundation for the field

reservation price as a range an incentive compatible measurement approach abstract drawing from the literature on buyers uncertainty in preference and product knowledge the authors suggest and empirically test the proposition that a consumer s reservation price for a product is more meaningfully and accurately represented as a range than as a single point given this conceptualization they propose an approach for incentive compatible elicitation of a consumer s reservation price range icerange that builds on becker degroot and marschak s 1964 point of purchase method two empirical applications of the approach provide an assessment of its practicality and its predictive performance relative to current methodologies for reservation price elicitation the results demonstrate that the proposed method significantly outperforms the benchmark approaches in terms of predictive validity and yields valuable incremental information about uncertainty in product valuation

choice certainty and consistency in repeated choice experiments the main objective of this study is to examine how repeated choice affects preference learning in stated preference experiments we test different hypotheses related to preference learning by analyzing response patterns and asking respondents in a choice experiment to report their experienced certainty when going through the choice tasks in a split sample test we show that follow up choice certainty questions are procedural invariant the self reported certainty results indicate that learning occurs but econometric testing procedures do not identify any significant impact of learning effects on parameter estimates or variance across choice tasks additional tests of choice consistency suggest that preferences in the choice experiment are stable and coherent

a rule of one a rule ofone one rational person is enough to make a market one irrational person is enough to break a game let me explain the power of the market as an exchange institution rests in its ability to move resources from lowto highvalued uses the market works if one person is rational enough to look for arbitrage opportunities among the other irrational players he buys low and sells high the market collects and disseminates this information such that others

the bidder s curse traditional explanations for the popularity of auctions are efficiency and revenue maximization we argue that another reason is the potential for overbidding i e buyers bidding above their willingness to pay outside the auction the auction mechanism ensures that even if only few buyers overbid they affect prices and allocations we employ a novel approach to identify overbidding in the field comparing auction prices to simultaneous fixed prices for identical items on the same ebay webpage we argue that fixed prices provide an upper bound for auction bids in a detailed data set of board game auctions we find that the final price exceeds the simultaneous fixed price in 42 percent of the auctions the result is not explained by differences in item quality shipping costs or seller reputation prior auction experience does not eliminate overbidding the finding replicates in a second broad data set of a cross section of auctions 48 percent overbidding the substantial fraction of overbid auctions is induced by a small number of bidders only 17 percent ever bid above the fixed price using a simple model of second price auctions with alternative fixed prices we show that transaction costs of switching between auctions and fixed prices cannot explain the results given that even the expected auction price is higher than the fixed price consistent with limited attention the closer the fixed price is listed relative to an auction the less likely are overbids this effect is strongest for bidders first bids when they are likely to examine the auction and fixed price listings more closely

order in product customization decisions evidence from field experiments differentiated product models are predicated on the belief that a product s utility can be derived from the summation of utilities for its individual attributes in one framed field experiment and two natural field experiments we test this assumption by experimentally manipulating the order of attribute presentation in the product customization process of custom made suits and automobiles we find that order affects the design of a suit that people configure and the design and price of a car that people purchase by influencing the likelihood that they will accept the default option suggested by the firm

toward choice theoretic foundations for behavioral welfare economics interest in behavioral economics has grown in recent years stimulated largely by accumulating evidence that the standard model of consumer decision making provides an inadequate positive description of human behavior behavioral models are increasingly finding their way into policy evaluation which inevitably involves welfare analysis no consensus concerning the appropriate standards and criteria for behavioral welfare analysis has emerged yet this paper summarizes our effort to develop a unified framework for behavioral welfare economics for a detailed discussion see bernheim and rangel 2007 one that can be viewed as a natural extension of standard welfare economics standard welfare analysis is based on choice not on utility or preferences in its simplest form it instructs the planner to respect the choices an individual would make for himself the guiding normative principle is an extension of the libertarian deference to freedom of choice which takes the view that it is better to give a person the thing he would choose for himself rather than something that someone else would choose for him we show that it is possible to extend the standard choice theoretic approach to welfare analysis to situations where individuals make inconsistent choices which are prevalent in behavioral economics

the economics of grief we study the short run and long run economic impact of one of the largest losses that an individual can face the death of a child we utilise unique registers on the entire swedish population combining information on the date and cause of death with parental outcomes we exploit the longitudinal dimension of the data and deal with several selection issues losing a child has adverse effects on labour income employment status marital status and hospitalisation the value of policy measures aimed at preventing mortal accidents of children is underestimated if it does not take bereavement effects on parents into account

one swallow doesn t make a summer new evidence on anchoring effects some researchers have argued that anchoring in economic valuations casts doubt on the assumption of consistent and stable preferences we present new evidence that explores the strength of certain anchoring results we then present a theoretical framework that provides insights into why we should be cautious of initial empirical findings in general the model importantly highlights that the rate of false positives depends not only on the observed significance level but also on statistical power research priors and the number of scholars exploring the question importantly a few independent replications dramatically increase the chances that the original finding is true

do rational demand functions differ from irrational ones evidence from an induced budget experiment various studies e g becker 1962 ariely et al 2003 have noted anomalies concerning the relationship between observed demand and the preferences presumed to motivate it we re examine these findings using experimental choice data after separating our subjects choices into rational and irrational subsets based on consistency with the axioms of revealed preference we estimate and compare demand coefficients mirroring ariely et al s coherently arbitrary choice both rational and irrational demand estimates exhibit negative price and positive endowment coefficients however a comparison of the full set of demand coefficients indicates significant differences between the two yielding an observable artefact of the preference hypothesis relaxing the goodness of fit of the revealed preference test afriat 1987 varian 1994 does not alter our findings

gender specific starting point bias in choice experiments evidence from an empirical study abstract in this paper we test whether preferences and willingness to pay estimates obtained in a choice experiment study are susceptible to starting point bias as is often the case in dichotomous choice contingent valuation studies on the basis of a multinomial probit model we find that preferences are indeed susceptible to starting point bias in a split sample design our results suggest that varying the price levels displayed in a so called instructional choice set presented prior to the actual preference eliciting choice sets significantly impacts respondents preferences and willingness to pay for protecting danish nature areas from new motorway development in particular our results show that the bias is gender specific only female respondents are significantly affected results further reveal that the impact of the starting point bias decays as respondents evaluate more and more choice sets this supports the discovered preference hypothesis and on the basis of this we suggest a number of ways to potentially mitigate the starting point bias

market simulation and the provision of public goods a non paternalistic response to anomalies in environmental evaluation most normative economics assumes that individuals have coherent preferences this paper responds to growing evidence of failures of this assumption particularly in the context of stated preference methods widely used in environmental policy analysis it proposes a non paternalistic concept of consumer sovereignty that does not assume preference coherence is satisfied by competitive markets and can be applied to the provision of public goods a key implication is that decisions should reflect valuations revealed at the point of consumption such valuations which can be inferred from hedonic prices may be less susceptible to willingness to accept wta willingness to pay wtp disparities than those elicited by stated preference methods

are some lives more valuable an ethical preferences approach we develop a theoretical model of the ethical preferences of individuals combining individual social welfare functions and random utility theory the model is applied by conducting a choice experiment regarding safety enhancing road investments that target different age groups and road user types the relative value of a saved life is found to decrease with age such that the present value of a saved life year is almost independent of age at a pure rate of time preference of a few percent moreover a saved pedestrian is consistently valued higher than a saved car driver of the same age

anchoring in payment evaluating a judgmental heuristic in field experimental settings abstractanchoring the biasing of estimates toward a previously considered value is a long standing and oft studied phenomenon in consumer research however most anchoring work has been in the lab and the results from field work have been mixed here the authors use real transactions from an empirically investigated and commercially employed pricing scheme pay what you want to better understand how anchors influence payments sixteen field studies n 21 997 and four hypothetical studies n 3 174 reveal four main points 1 although anchoring replicates both with and without financial consequences studies 1 2 the percentile rank gap between anchors in the distribution of payments is a much stronger predictor of anchoring emerging than merely the absolute gap between the anchors on a number line studies 3 5 2 low anchors influence payments more than high anchors studies 6a b 3 findings from the literature that should enhance anchoring effects anchor precision descriptive and inj

valuing money and things why a 20 item can be worth more and less than 20 the study of risky decision making has long used monetary gambles to study choice but many everyday decisions do not involve the prospect of winning or losing money monetary gambles as it turns out may be processed and evaluated differently than gambles with nonmonetary outcomes whereas monetary gambles involve numeric amounts that can be straightforwardly combined with probabilities to yield at least an approximate expectation of value nonmonetary outcomes are typically not numeric and do not lend themselves to easy combination with the associated probabilities compared with monetary gambles the evaluation of nonmonetary prospects typically proves less sensitive to changes in the probability range inside the extremes of certainty and impossibility which among other things can yield preference reversals generalizing on earlier work that attributed similar findings to the role of affect in the evaluation process rottenstreich y c k hsee 2001 money kisses and electric shocks an affective psychology of risk psych sci 12 3 185 190 we attribute the observed patterns to a fundamental difference in the evaluation of monetary versus nonmonetary outcomes potential pitfalls in the use of monetary gambles to study choice are highlighted and implications and future directions are discussed

neuroeconomics why economics needs brains neuroeconomics uses knowledge about brain mechanisms to inform economic theory it opens up the black box of the brain much as organizational economics opened up the theory of the firm neuroscientists use many tools including brain imaging behavior of patients with brain damage animal behavior and recording single neuron activity the key insight for economics is that the brain is composed of multiple systems which interact controlled systems executive function interrupt automatic ones brain evidence complicates standard assumptions about basic preference to include homeostasis and other kinds of state dependence and shows emotional activation in ambiguous choice and strategic interaction

field experiments on the anchoring of economic valuations i introduction take the last three digits of your social security number ssn turn those numbers into a dollar value i e if your numbers are 462 then they provide a value of 462 consider whether you would be willing to pay that dollar amount for a first edition of j r r tolkien s the hobbit now how much would you actually pay for a first edition original copy a stylized result from laboratory experiments in economics and psychology is that the answer to the latter valuation question can be strongly influenced by the dollar amount computed at the start 1 critics of neoclassical theory have argued that the influence of uninformative anchors such as the transformed ssn refutes the notion that decision makers preferences are predefined consistent and stable instead they are constructed during the process of choice bettman luce and payne 1998 hoeffler and ariely 1999 slovic 1995 a natural conclusion one might draw from studies of anchoring is that decisions may be influenced by irrelevant circumstances and optimization principles do not apply the laboratory evidence consonant with anchoring effects is considerable tversky and kahneman 1974 make a seminal contribution implementing a protocol similar to the one described above to examine general knowledge questions 2 furnham and boo 2011 provide a recent review of the literature and identify more than 25 studies that report significant anchoring effects substantive areas investigated include general knowledge questions epley and gilovich 2006 tversky and kahneman 1974 probability estimates wright and anderson 1989 legal judgments englich and mussweiler 2001 forecasting switzer and sniezek 1991 and valuation and purchasing decisions ariely loewenstein and prelec 2003 taken together the results suggest strong effects from anchoring protocols even in areas where subjects have significant experience yet the importance of anchoring for economic outcomes remains an open question one reason is that research goals and methods differ across the disciplines of psychology and economics croson 2005 hertwig and ortmann 2001 plott 1996 3 fumham and boo 2011 note that drawing generalizable conclusions from the existing anchoring studies is difficult as many involve undergraduate students engaged with topics they are unlikely to encounter in field settings their observation is consistent with the criticism of the ecological validity of many studies made by gerd gigerenzer and colleauges gigerenzer et al 2008 discussed in our footnote 2 while the results of these studies may help distinguish among competing causal claims about the anchoring process they are less relevant for understanding the potential for anchors to affect market equilibria further many of the studies lack meaningful incentives and we believe that economists are justifiably circumspect about results that may merely reflect mistakes made by unmotivated subjects consistent with this view is the idea that with appropriate incentives and feedback anchoring effects should diminish and behavior more closely match predictions from neoclassical models 4 recent attempts to examine the relevance of anchoring for economic outcomes closely follow ariely loewenstein and prelec 2003 alp hereafter who find statistically and economically significant effects of anchors on willingness to pay wtp for common consumer goods and on willingness to accept wta for unpleasant sounds and tastes bergman et al 2010 and fudenberg levine and maniadis 2012 flm hereafter replicate the consumer goods portion of the alp study with mixed results bergman et al 2010 find significant anchoring results consistent with the earlier work although the magnitude of the effect is smaller implementing an auxiliary protocol they find also that anchoring effects diminish with cognitive ability flm 2012 attempt to anchor both wtp and wta and find no evidence of anchoring in the wtp treatment

eliciting preferences for public goods in nonmonetized communities accounting for preference uncertainty one major challenge when conducting contingent valuation studies in developing countries is the choice of the appropriate payment vehicle since regular cash income does not exist for the majority of the population and market integration is low households in rural areas have less experience with monetary exchanges in these cases labour time may be a more appropriate payment vehicle a common finding of studies using labour time as the payment vehicle is that households are more often willing to contribute working time as compared to money however so far empirical evidence is missing if the labour time elicitation format reduces respondent s uncertainty of contributions in this study we analyze and compare uncertainty of people s stated willingness to contribute wtc time and money for a local public good in a non monetized small scale community in bougainville papua new guinea we do so by establishing an open ended method for eliciting people s wtc the range wtc method which elicits the upper and lower bound of a person s wtc we find that uncertainty is reduced when respondents are asked for labour time contribution instead of monetary contributions thus we provide empirical evidence that indeed labour time is the preferred to money in the elicitation of stated wtc in non monetized communities

anchoring and cognitive ability abstract we find that the actual willingness to pay for various consumer goods can be manipulated by an uninformative anchor replicating ariely et al 2003 we furthermore demonstrate that the anchoring effect decreases but does not vanish with higher cognitive ability

on the path dependence of tax compliance abstract this paper presents experimental evidence that tax compliance is path dependent for given values of the audit probability and the fine for tax evasion we compare the income declaration of subjects who faced a change in one of the two parameters to that of subjects who experienced no such parameter change we show that past tax enforcement regimes continue to have an impact on current income declarations this finding may be explained by reference dependent preferences and it has important policy implications for instance legal transplants cannot be expected to reliably yield similar behavior in countries with different legal histories

why not cut pay abstract i interviewed over 300 business people labor leaders business consultants and counselors of unemployed people all in the northeast of the united states during the recession of the early 1990 s in order to learn why wages and salaries declined in only a few firms employers were reluctant to cut pay because they believed doing so would hurt employee morale leading to lower productivity and current or future difficulties with hiring and retention it was thought that these effects would in the end cost more than the savings from lower pay there were few indications that unemployed people had excessive wage expectations on the contrary many unemployed were too flexible and found themselves rejected by firms as overqualified in most companies pay cuts were not a useful alternative to layoffs because pay cuts would not make it worthwhile to retain many employees and because layoffs harmed morale less than would pay cuts the findings support none of the theories of wage rigidity except those of solow and akerlof that emphasize morale

contingent valuation a new perspective after several decades of academic research on the contingent valuation cv method a consistent behavioral explanation of hypothetical bias is still lacking based on evidence from economics economic psychology and the political sciences i propose an explanation that is based on two simple working hypotheses about respondent behaviour in contingent valuation surveys the first hypothesis is that survey respondents are unable to form consistent preferences about unfamiliar goods unless the choice context offers reliable informative cues that can be rationally exploited in simplified heuristics the second hypothesis is that the probability and impact of strategic responses in dichotomous choice questions about public goods depends on the extent to which the presented hypothetical costs differ from the actual costs the literature on hypothetical bias is revisited in the light of these behavioral hypotheses i find that the hypotheses are generally supported by the empirical data moreover the hypotheses are able to explain several important empirical phenomena that previous research has not been able to explain in particular they solve the puzzle that pre election polls but not cv surveys are able to predict actual referendum outcomes and they explain why income effects on willingness to pay are lower in cv responses than in actual votes if confirmed by further studies the hypotheses will have important implications for future research and practice first the hypothetical costs presented in the dichotomous choice question should to be close enough to the actual costs to be credible to all respondents this can be achieved by specifying the costs as a percentage rather than absolute change in taxes second the respondents should be given the option to answer based on information about the positions of large parties and interest groups with known political orientation rather than based on the raw policy information theory and evidence suggest that this new survey paradigm largely eliminates the fundamental problems of the conventional stated preference methods

the motivating uncertainty effect uncertainty increases resource investment in the process of reward pursuit can a reward of an uncertain magnitude be more motivating than a reward of a certain magnitude this research documents the motivating uncertainty effect and specifies when this effect occurs people invest more effort time and money to qualify for an uncertain reward e g a 50 chance at 2 and a 50 chance at 1 than a certain reward of a higher expected value e g a 100 chance at 2 this effect arises only when people focus on the process of pursuing a reward not when they focus on the outcome the reward itself when the focus is on the process of reward pursuit uncertainty generates positive experience such as excitement and hence increases motivation four studies involving real rewards lend support to the motivating uncertainty effect this research carries theoretical implications for research on risk preference and motivation and practical implications for how to devise cost efficient consumer incentive systems

how to make a 29 increase look bigger the unit effect in option comparisons quantitative information can appear in different units e g 7 year warranty 84 month warranty this article demonstrates that attribute differences appear larger on scales with a higher number of units expressing quality information on such an expanded scale makes consumers switch to a higher quality option testifying to its practical importance expressing the energy content of snacks in kilojoules rather than kilocalories increases the choice of a healthy snack the unit effect occurs because consumers focus on the number rather than the type of units in which information is expressed numerosity effect therefore reminding consumers of alternative units in which information can be expressed eliminates the unit effect finally the unit effect moderates relative thinking consumers are more sensitive to relative attribute differences when the attribute is expressed on expanded scales the relation with anchoring and implications for temporal discounting and loyalty programs are discussed

the welfare economics of default options in 401 k plans default contribution rates for 401 k pension plans powerfully influence choices potential causes include opt out costs procrastination inattention and psychological anchoring using realistically parameterized models we show how the optimal default the magnitude of the welfare effects and the degree of normative ambiguity depend on the behavioral model the scope of the choice domain deemed welfare relevant the use of penalties for passive choice and other 401 k plan features while results are theory specific our analysis provides reasonably robust justifications for setting the default either at the highest contribution rate matched by the employer or contrary to common wisdom at zero jel d14 d91 j26 j32

strategic pricing consumer search and the number of firms discover prices there are three distinct price dispersed equilibria characterized by low moderate and high search intensity the effects of an increase in the number of firms on search behaviour expected prices price dispersion and welfare are sensitive i to the equilibrium consumers search intensity and ii to the status quo number of firms for instance when consumers search with low intensity an increase in the number of firms reduces search does not affect expected price leads to greater price dispersion and reduces welfare in contrast when consumers search with high intensity increased competition results in more search and lower prices when the number of competitors in the market is low to begin with but in less search and higher prices when the number of competitors is large duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms a question that has received much attention in economic theory is how the number of competitors and market outcomes are related despite the existence of work showing the contrary see e g satterthwaite 1979 rosenthal 1980 the prediction that emerges from a market where firms interact in a cournot fashion has come to dominate economic thought namely that an increase in the number of competitors leads to larger aggregate production lower market price and improved market performance measured in terms of some social welfare criterion ruffin 1971 this paper challenges the generality of this belief by presenting an oligopoly model with consumer search where the equilibrium expected price may be constant increasing or nonmonotonic in the number of firms we present an economy with two types of consumers consumers who search for prices at no cost fully informed and consumers who must pay a fixed search cost for each price quotation they observe less informed 1 all buyers have the same willingness to pay for the good and buy either a single unit or nothing at all on the supply side of the market there are n firms producing a homogeneous good at constant marginal cost we analyse a one shot simultaneous move game firms set prices and consumers decide how many prices to search for at the same moment in time our model is essentially an oligopolistic version of burdett and judd 1983 where some consumers search costlessly in this model consumers search using a fixed sample size search strategy i e they choose the number of prices to observe before receiving any offer nonsequential search is appealing when consumers find it more advantageous to gather price information quickly morgan and manning 1985 this occurs when the search outcome is observed with delay and delay is costly for instance an mba graduate looking for a job 1 the presence in the model of consumers who search costlessly captures the fact that some people have a

do markets reveal preferences or shape them we contrast the proposition that markets reveal independently existing preferences with the alternative possibility that they may help to shape them using demand revealing experimental market institutions we separate the shaping effects of price cues from the effects of market discipline we find that individual valuations and prevailing prices are systematically affected by both exogenous manipulations of price expectations and endogenous but divergent price feedback these effects persist to varying degrees in spite of further market experience in some circumstances market experience may actually consolidate them we discuss possible explanations for these effects of uninformative price cues on revealed preferences

it s not what you get but when you get it the effect of gift sequence on deposit balances and customer sentiment in a commercial bank abstract the authors examine the impact of gifts on deposit balances and customer satisfaction in a longitudinal field experiment conducted at a commercial bank they find that gifts increased deposit balances survey response rates and customer satisfaction compared with the no gift control they manipulated several factors within the gift treatment gift type the accompanying message and the sequence of gift value which improved 35 then 100 gift worsened 100 then 35 gift or was a single gift a highly detrimental effect of decreasing gift value occurred on deposit balances this deterioration aversion persisted in a long term follow up analysis of deposit balances a vignette experiment replicates deterioration aversion and extends the results demonstrating increased effectiveness of improving gifts over constant gift sequences and indicating that the mechanism underlying deterioration aversion involves the violation of expectations

food labeling and eco friendly consumption experimental evidence from a belgian supermarket using an incentive compatible framed field experiment we investigate whether consumers food consumption is more eco friendly when the information about a product s environmental impact is more easily accessible through an online survey we identify a food label that is perceived to be the most easily accessible for assessing a product s eco friendliness among six alternatives these alternatives vary on multiple dimensions including whether a standardized score of the overall environmental impact is added this new food label is subsequently tested in an experimental food market embedded in a belgian supermarket we find that the presence of the new label that was preselected in the online survey leads to more eco friendly food consumption relative to either the label currently used in the supermarket or the label that contains the raw information of the environmental impact in our experimental food market the use of an easy to interpret but comprehensive environmental information label increases the overall eco friendliness of our subjects food consumption by about 5 3 relative to the default label used in current markets

bidding in private value auctions with uncertain values abstract auctions are often used to sell idiosyncratic goods difficult for potential bidders to value ex ante laboratory auctions with uncertainty over final values in this experiment resulted in 18 and 27 of bids above the expected value of the item in private value first price and english auctions respectively risk seeking preferences as measured on an individual decision task cannot explain overbidding and the first price auction results suggest that risk aversion may not be a good explanation for bidding behavior observed with certain values several candidate explanations fail to explain overbidding rather it appears to stem from some bidders who are prone to overbidding relative to first price auctions the size and frequency of overbids are significantly larger in english auctions while more english auctions are won by overbidders differences between the formats appear to be driven by the dynamic nature of english auctions which is consistent with popular notions of auction fever

contingent valuation of community forestry programs in ethiopia controlling for preference anomalies in double bounded cvm this study examines the welfare effects of community plantations in ethiopia via contingent valuation both single bounded and double bounded survey methods were considered and with respect to double bounded methods the potential for anomalous response behaviour was also taken into account the results generally confirm that there are statistically significant welfare benefits to be derived from community forestry however the range of the estimated benefits is large after controlling for anomalous response behaviour the range of estimated benefits narrows and our preferred estimates place the welfare gain between ethiopian birr etb 20 14 and 30 41 per household which is much lower than the estimated benefits without controlling for anomalous preference responses

case based decision theory this paper suggests that decision making under uncertainty is at least partly case based we propose a model in which cases are primitive and provide a simple axiomatization of a decision rule that chooses a best act based on its past performance in similar cases each act is evaluated by the sum of the utility levels that resulted from using this act in past cases each weighted by the similarity of that past case to the problem at hand the formal model of case based decision theory naturally gives rise to the notions of satisficing decisions and aspiration levels

learning and fatigue effects revisited investigating the effects of accounting for unobservable preference and scale heterogeneity using multiple choice tasks per respondent in discrete choice experiment studies increases the amount of available information however respondents learning and fatigue may lead to changes in observed utility function preference taste parameters as well as the variance in its error term scale they need to be controlled to avoid potential bias a sizable body of empirical research offers mixed evidence in terms of whether these ordering effects are observed we point to a significant component in explaining these differences we show how accounting for unobservable preference and scale heterogeneity can influence the magnitude of observed ordering effects

choke price bias in choice experiments this paper reports on the results from a split sample choice experiment where the effect of changing the maximum level of the cost attribute is investigated the hypothesis was that changing the maximum price level would either give rise to an income effect or have no effect on consumers preferences this was tested in the framework of a valuation study of different quality characteristics of minced pork the data was analysed using a mixed logit error component model which accounts for correlation in the unobserved part of the utility results suggest that the size of the maximum price level does matter and that changing the maximum price level has a statistically significant effect on both the general preferences structure and the wtp estimates hence researchers should be very careful when defining not only the range of the price attribute but also the maximum level of the price attribute

a hybrid choice model that uses actual and ordered attribute value information abstract in the usual multinomial choice model consumers choose to use actual value information that is utilities are continuous functions of product attributes e g choices depend on actual magnitudes of price differences the authors propose an alternative model in which consumers use only ordered value information that is utilities are functions only of the relative orderings of the attributes values across alternatives e g choices depend only on the price ordering and not on actual prices the ordered value model is attractive because it fits well with psychological evidence that consumers often favor decision mechanisms that are cognitively less demanding using a supermarket shopper panel data set the authors evaluate four models in which 1 all consumers use actual values 2 all consumers use ordered values 3 some consumers use actual values all the time and some consumers use ordered values all the time and 4 all consumers use both actual values and ordered values but w

bounded rationality in contingent valuation empirical evidence using cognitive psychology abstract survey based valuation techniques like the contingent valuation method cvm rely particularly on the premise of respondents rationality when answering willingness to pay wtp questions results of cvm surveys have repeatedly put this fundamental assumption into question this study adopts a more realistic view of rationality accounting for respondents limited capacities to process information based on cognitive psychology a technique to detect and analyze the bounds of rationality inherent in wtp statements is developed using an empirical example the influence of bounded rationality on the validity of cvm results is analyzed it is shown that individual differences in information processing play a major role for the validity of cvm responses the results allow new insights into response behavior in dichotomous choice versus payment card elicitation formats from the results of this study recommendations for future survey designs taking into account respondents different information processing modes are developed

relative pay and labor supply we examine the impact of relative wages on labor supply in a laboratory experiment we test the hypothesis that ceteris paribus making a given wage high low relative to other wage levels will lead to an increase decrease in labor supply we find that labor supply does respond significantly to relative pay and in the expected direction however when a strong enough reason for the relative low pay is given this difference disappears

stability of willingness to pay for coastal management a choice experiment across three time periods a key assumption of stated preference methods is that individuals have well formed preferences that are robust over time both the discovered and constructed preference perspectives imply this is not necessarily the case there can be a large situational component to expressed preferences that add to the uncertainty of sampling error most non market valuation studies only collect data from one point in time so the degree of temporal variability cannot be tested test retest studies that provide data from two points in time generally find significant differences in preference structure and willingness to pay wtp in this study we test stability of wtp for beach erosion management using a fully ranked discrete choice experiment survey with not one but two retests over a six month period we find that stability does not improve with the additional repetition as the preference discovery hypothesis implies it might wtp confidence intervals overlap but the models are significantly different at each point in time even after allowing for variation in choice error either the survey did not facilitate sufficient preference discovery or preferences were reconstructed however respondents with high scores of self reported certainty in their choices in the first survey had significantly more stable wtp estimates

short run subsidies and long run adoption of new health products evidence from a field experiment short run subsidies for health products are common in poor countries how do they affect long run adoption a common fear among development practitioners is that one off subsidies may negatively affect long run adoption through reference dependence people might anchor around the subsidized price and be unwilling to pay more for the product later but for experience goods one off subsidies could also boost long run adoption through learning this paper uses data from a two stage randomized pricing experiment in kenya to estimate the relative importance of these effects for a new improved antimalarial bed net reduced form estimates show that a one time subsidy has a positive impact on willingness to pay a year later inherit to separately identify the learning and anchoring effects we estimate a parsimonious experience good model estimation results show a large positive learning effect but no anchoring we black then discuss the types of products and the contexts inherit for which these results may apply

the house doesn t always win evidence of anchoring among australian bookies abstract we examine australian horseracing bookmakers responses to late scratches instances in which a horse is abruptly withdrawn after betting has commenced our observed bookies exhibit anchoring on the original odds and fail to re adjust odds fully on the remaining horses after a scratch thereby earning lower profit margins and occasionally creating nominal arbitrage opportunities for bettors we also examine which horses odds bookies adjust after a scratch and demonstrate diminished profit margins even after controlling for these endogenous adjustments our results indicate that bookies adjustments recover approximately 80 of lost profit margin but that bookies forgo the remaining 20 due to systematic under adjustments

auction fever rising revenue in second price auction formats the prevalent term auction fever visualizes that ascending auctions inconsistent with theory are likely to provoke higher bids than one shot auctions to explore and isolate causes of auction fever experimentally we design four different strategy proof auction formats and order these according to expected rising bids based on pseudo endowment effect arguments psychological ownership and disparity between willingness to pay and willingness to accept observed revenues in the experiment in the four formats rank as expected if bidders have private uncertain values the private information of a bidder is the distribution of her value a control treatment supports our view that the traditional private certain values approach prevents auction fever in the laboratory another control treatment with a procurement auction relates the auction fever bids to bids in a one shot auction with real endowments we conclude that when bidders are uncertain about their valuations auctions that foster pseudo endowment may raise bids and revenues

learning design contingent valuation ldcv noaa guidelines preference learning and coherent arbitrariness we extend the contingent valuation cv method to test three differing conceptions of individuals preferences as either i a priori well formed or readily divined and revealed through a single dichotomous choice question as per the noaa cv guidelines k arrow r solow p r portney e e leamer r radner h schuman report of the noaa panel on contingent valuation fed reg 58 1993 4601 4614 ii learned or discovered through a process of repetition and experience j a list does market experience eliminate market anomalies q j econ 2003 41 72 c r plott rational individual behaviour in markets and social choice processes the discovered preference hypothesis in k arrow e colombatto m perleman c schmidt eds rational foundations of economic behaviour macmillan london st martin s new york 1996 pp 225 250 iii internally coherent but strongly influenced by some initial arbitrary anchor d ariely g loewenstein d prelec coherent arbitrariness stable demand curves without stable preferences q j econ 118 1 2003 73 105 findings reject both the first and last of these conceptions in favour of a model in which preferences converge towards standard expectations through a process of repetition and learning in doing so we show that such a learning design cv method overturns the stylised facts of bias and anchoring within the double bound dichotomous choice elicitation format

expected prices as reference points theory and experiments abstract i show theoretically that applying the model of k szegi and rabin 2006 to a simple purchasing decision where consumers are ex ante uncertain about the price realisation gives when changing the underlying distribution of expected prices rise to counterintuitive predictions in contrast with a good deal model where consumers are predicted to be disappointed rejoice when the realised price is perceived as being worse better than the other possible realisation while the underlying ideas of both models are similar with respect to expectation based reference points the different results come from the concept of personal equilibrium in k szegi and rabin 2006 the experimental results show some support for the simpler good deal model for a number of different real consumption goods though the support is weaker for goods that either have a salient market price or no market price outside of the experiment

product line pricing in a vertically differentiated oligopoly this paper examines the joint pricing decision of products in a firm s product line when products are distinguished by a vertical characteristic those with higher values of that characteristic will command higher prices we investigate whether holding the value of the characteristic constant there is an additional price premium for products on the industry and or the firm frontier that is for the products with the highest value of the characteristic in the market or in a firm s product line we also investigate the existence of price premia for lower ranked products and other product line pricing questions using personal computer price data we show that prices decline with the distance from the industry and firm frontiers even after holding absolute quality constant we find evidence that consumer tastes for brands is stronger for the consumers of frontier products and thus competition between firms weaker in the top end of the market there is also evidence that a product s price is higher if a firm offers products with the immediately faster and immediately slower computer chip holding the total number of a firm s offerings constant possibly as an attempt to reduce cannibalization finally a product s price declines with the time it is offered by a firm suggesting intertemporal price discrimination ce memoire examine la decision conjointe de tarification des produits dans la ligne de produits d une firme quand les produits se distinguent par une caracteristique verticale ceux qui ont de plus grandes valeurs pour cette caracteristique commanderont de plus forts prix on se demande si gardant la valeur de cette caracteristique constante il y a une prime additionnelle des prix pour les produits de l industrie ou pour les produits de pointe de la firme i e les produits avec la plus haute valeur de cette caracteristique dans le marche ou dans la ligne de produits de la firme on examine aussi s il existe une prime de prix pour les produits qui se classent moins bien ou d autres questions sur la tarification des lignes de produits en utilisant des donnees de prix pour les ordinateurs personnels on montre que les prix chutent a mesure qu on s eloigne de la frontiere des produits de pointe pour l industrie et la firme meme si on garde la qualite absolue constante les resultats montrent que le gout des consommateurs pour les marques est plus fort pour les consommateurs des produits de pointe et que la concurrence entre firmes est plus faible dans cette section du marche on montre aussi que le prix d un produit est plus eleve si une firme offre des produits avec une puce juste plus rapide et plus lente tout en gardant le nombre total de produits de la firme constant possiblement dans un effort pour reduire la cannibalisation enfin le prix d un produit decline a proportion que la periode de temps ou il est offert par une firme s allonge ce qui suggere qu il y a discrimination intertemporelle par les prix

reducing gain loss asymmetry a virtual reality choice experiment valuing land use change abstract in the majority of choice experiments ces the attributes of non market goods are conveyed to respondents as a table of numeric and or categorical data recent research suggests that respondents may have difficulties evaluating data in this format in the context of a ce eliciting preferences for changes in coastal land use this study uses a split sample experiment to compare standard presentations with virtual reality vr visualisations conveying objectively identical information we find that compared to the standard presentation preferences elicited in vr treatments are less variable and exhibit a significant reduction in asymmetry between willingness to pay wtp for gains and willingness to accept wta for corresponding losses we conjecture that the greater evaluability of the vr presentation reduces respondent judgement error and moderates reliance on the loss aversion heuristic

preferences with and without prices does the price attribute affect behavior in stated preference surveys the experimental as well as the non market valuation literature include several examples of how an introduced price can affect behavior in otherwise not expected ways it has become standard to include a price vector as an attribute in choice experiments something that enables us to estimate a marginal willingness to pay for other attributes we test the impact on preferences by an inclusion of a price in a choice experiment preferences are affected as might be expected however also the relative ranking of individual attributes is affected

how are preferences revealed revealed preferences are tastes that rationalize an economic agent s observed actions normative preferences represent the agent s actual interests it sometimes makes sense to assume that revealed preferences are identical to normative preferences but there are many cases where this assumption is violated we identify five factors that increase the likelihood of a disparity between revealed preferences and normative preferences passive choice complexity limited personal experience third party marketing and intertemporal choice we then discuss six approaches that jointly contribute to the identification of normative preferences structural estimation active decisions asymptotic choice aggregated revealed preferences reported preferences and informed preferences each of these approaches uses consumer behavior to infer some property of normative preferences without equating revealed and normative preferences we illustrate these issues with evidence from savings and investment outcomes

anchoring effects on consumers willingness to pay and willingness to accept we examine the susceptibility of consumers willingness to pay wtp and willingness to accept wta judgments to influence by arbitrary anchors the results of four studies suggest that although circumstantial differences between buying and selling decisions can lead to systematic differences in susceptibility to anchoring effects the principles governing the impact of anchoring on wtp and wta judgments are essentially the same in particular robust anchoring effects are observed when the anchor relates to the focal source of uncertainty further wtp and wta judgments are most susceptible to anchoring and endowment effects under uncertainty about the desire to trade the implications of this research for our understanding of anchoring and endowment effects are discussed

modelling cognitively bounded rationality an evaluative taxonomy abstract since its origins in the 1950s the notion of bounded rationality has been incorporated into economic theory using an array of methodological approaches this paper presents a taxonomy by which these approaches can be categorized and understood evaluating each approach against a range of important criteria at a time when the foundations of economic theory are being re examined this paper should be viewed as a first step towards an assessment of the appropriate role that this more realistic view of cognition should take in different areas of economic theory and also of the desirable characteristics of models that incorporate it

anchored in the past persistent price effects of obsolete vineyard ratings in france abstract although abundant evidence for anchoring in economic valuations has been produced in experimental settings there have been relatively few studies testing for anchoring in actual markets we analyze data on grape and vineyard prices in the champagne region of france to determine whether current prices are anchored on past prices set under a discontinued price setting system the key feature of this system is a vineyard quality rating called the echelle des crus edc the econometric challenge is to separately identify anchoring effects from the effects of relevant information edc era prices may convey about grape and vineyard quality our empirical approach controls for observable attributes of vineyards and time invariant unobserved determinants of vineyard quality that may be revealed to market participants through edc era prices in addition we use an instrumental variables strategy to mitigate confounding influences of time varying unobservables we find strong evidence that anchoring has large effects on prices for grapes and vineyards we also examine whether the anchoring effect is diminishing over time as market participants come to rely more on objective information to determine prices we find instead a persistent effect of the edc many years after it became obsolete

changing with the tide semiparametric estimation of preference dynamics we contrast the discovered preference hypothesis against the theory of coherent arbitrariness in a split sample stated choice experiment on flood risk exposure a semiparametric local multinomial logit model is developed as an alternative to the swait and louviere 1993 test procedure controlling for preference dynamics within and between samples the proposed model supports the discovered preference hypothesis by means of a decaying starting point bias the swait and louviere 1993 test procedure reaches a different conclusion it rejects the assumption of stable preferences but most preference dynamics tend to be smoothed out causing a more erratic pattern of preference dynamics

coherent arbitrariness stable demand curves without stable preferences economic theories of valuation generally assume that prices of commodities and assets are derived from underlying fundamental values for example in finance theory asset prices are believed to reflect the market estimate of the discounted present value of the asset s payoff stream in labor theory the supply of labor is established by the tradeoff between the desire for consumption and the displeasure of work finally and most importantly for this chapter consumer microeconomics assumes that the demand curves for consumer products chocolates cds movies vacations drugs and so forth can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products because it is difficult as a rule to measure fundamental values directly empirical tests of economic theory typically examine whether the effects of changes in circumstances on valuations are consistent with theoretical prediction for example whether labor supply responds appropriately to a change in the wage rate whether compensated demand curves for commodities are downward sloping or whether stock prices respond in the predicted way to share repurchases however such comparative static relationships are a necessary but not sufficient condition for fundamental valuation e g summers 1986 becker 1962 was perhaps the first to make this point explicitly when he observed that consumers choosing commodity bundles randomly from their budget set would nevertheless produce downward sloping demand curves

cost conscious the neural and behavioral impact of price primacy on decision making price is a key factor in most purchases but it can be presented at different stages of decision making the authors examine the sequence dependent effects of price and product information on the decision making process at both neural and behavioral levels during functional magnetic resonance imaging the price of a product was shown to participants either before or after the product itself was presented early exposure to price or price primacy altered the process of valuation as observed in altered patterns of activity in the medial prefrontal cortex immediately before making a purchase decision specifically whereas viewing products first resulted in evaluations strongly related to products attractiveness or desirability viewing prices first appeared to promote overall evaluations related to products monetary worth consistent with this framework the authors show that price primacy can increase purchase of bargain priced products when their worth is easily recognized together these results

your loss is my gain a recruitment experiment with framed incentives empirically labor contracts that financially penalize failure induce higher effort provision than economically identical contracts presented as paying a bonus for success an effect attributed to loss aversion this is puzzling as penalties are infrequently used in practice the most obvious explanation is selection loss averse agents are unwilling to accept such contracts i formalize this intuition then run an experiment to test it surprisingly i find that workers were 25 percent more likely to accept penalty contracts with no evidence of adverse or advantageous selection consistent with the existing literature penalty contracts also increased performance on the job by 0 2 standard deviations i outline extensions to the basic theory that are consistent with the main results but argue that more research is needed on the long term effects of penalty contracts if we want to understand why firms seem unwilling to use them

mistake 37 the effect of previously encountered prices on current housing demand based on contrast effects studies from psychology we predicted that movers arriving from more expensive cities would rent pricier apartments than those arriving from cheaper cities we also predicted that as people stayed in their new city they would get used to the new prices and would readjust their housing expenditures countering the initial impact of previous prices we found support for both predictions in a sample of 928 movers from the psid alternative explanations based on unobserved wealth and taste and on imperfect information are ruled out

destruction and distress using a quasi experiment to show the effects of the september 11 attacks on mental well being in the united kingdom using a longitudinal household panel dataset in the uk where a significant proportion of the interviews are conducted in september each year we are able to show that the attacks of september 11 resulted in lower levels of subjective well being for those interviewed after that date in 2001 compared with those interviewed before it this quasi experiment provides one of the first examples of the impact of a terrorist attack in one country on well being in another country

who is a passive saver under opt in and auto enrollment abstract defaults have been shown to have a powerful effect on retirement saving behavior yet there is limited research on who is most affected by defaults and whether this varies based on features of the choice environment using administrative data on employer sponsored retirement accounts linked to survey data we estimate the relationship between retirement saving choices and individual characteristics long term discounting present bias financial literacy and exponential growth bias under two distinct choice environments an opt in regime and an auto enrollment regime consistent with our conceptual model we find that the determinants of following the default and contribution behavior are regime specific under the opt in regime financial literacy plays an important role in predicting total contributions active saving choices and maxing out contributions in the tax preferred account in contrast under the auto enrollment regime present bias is the most significant behavioral predictor of contribution behavior a causal interpretation of the estimates suggests that auto enrollment increases saving primarily among those with low financial literacy

willingness to pay for natural organic and conventional foods the effects of information and meaningful labels vague food labels and distorted product claims have persisted in the natural food industry while organic claims can be certified by the u s department of agriculture usda using experimental methods and a sample of randomly selected subjects we test food label and information treatment effects on subjects willingness to pay wtp for organic natural and conventional foods random nth price auctions are used to elicit wtp after subjects received one of five randomly assigned information treatments we find large information effects including asymmetric cross market effects for natural and organic foods perhaps surprising is that organic premiums increase in response to subjects seeing the natural foods industry s perspective on its products demographics effects are also important the results have practical implications for natural and organic food marketing and valuing products where there are vague claims about their attributes