money demand and seigniorage maximizing inflation conventional estimates of the seigniorage maximizing inflation rate often make use of the cagan form which implies a constant semielasticity of money demand with respect to inflation this paper shows that the elasticity of substitution in transactions between money and bonds determines how the inflation semielasticity of money demand changes as inflation rises allowing for a variable semielasticity estimates of seigniorage maximizing inflation for a panel of eleven high inflation countries are lower than those obtained by using the cagan form estimates based on the correct measure of the opportunity cost of money also differ sharply from those obtained when using conventional inflation measures copyright 1995 by ohio state university press

fighting inflation with high interest rates the small open economy case under flexible prices in high inflation countries policymakers often end up paying interest on part of the money supply higher interest rates on money have been used both to reduce inflation and to defend the domestic currency this paper analyzes the effectiveness of such a policy in the context of an open economy with flexible prices and exchange rates a temporary increase in the interest rate on money reduces the price level on impact but inflation follows an explosive path afterwards the domestic currency appreciates on impact but begins to depreciate immediately thereafter hence the analysis does not support the use of high interest rates in disinflationary programs copyright 1995 by ohio state university press

subsidizing health insurance for low income adults evidence from massachusetts how much are low income individuals willing to pay for health insurance and what are the implications for insurance markets using administrative data from massachusetts subsidized insurance exchange we exploit discontinuities in the subsidy schedule to estimate willingness to pay and costs of insurance among low income adults as subsidies decline insurance take up falls rapidly dropping about 25 percent for each 40 increase in monthly enrollee premiums marginal enrollees tend to be lower cost indicating adverse selection into insurance but across the entire distribution we can observe approximately the bottom 70 percent of the willingness to pay distribution enrollees willingness to pay is always less than half of their own expected costs that they impose on the insurer as a result we estimate that take up will be highly incomplete even with generous subsidies if enrollee premiums were 25 percent of insurers average costs at most half of potential enrollees would buy insurance even premiums subsidized to 10 percent of average costs would still leave at least 20 percent uninsured we briefly consider potential explanations for these findings and their normative implications

borrowing high versus borrowing higher price dispersion and shopping behavior in the u s credit card market we document substantial cross individual dispersion in u s credit card borrowing costs even after controlling for borrower risk and card characteristics that remaining dispersion arises because cross lender pricing heterogeneity generates dispersion in annual percentage rate apr offers to borrowers and borrowers vary in shopping intensity our empirics match administrative data to self reported card shopping intensity and use instruments suggested by fair lending law to account for the endogeneity between aprs and search the results show that shoppers versus nonshoppers pay aprs as different as those paid by borrowers in the best versus worst credit score deciles we discuss implications for policy and practice

price framing effects on the purchase of hedonic and utilitarian bundles abstract marketers are increasingly offering bundles that combine cross category seemingly unrelated items this article examines the conditions under which framing a discount as savings on certain items of cross category bundles is more effective for increasing bundle purchase three experiments show that the purchase of a cross category bundle is more likely when the discount is framed as savings on the relatively hedonic component rather than as savings on the utilitarian component or on the total bundle the authors explain the findings based on the notion that a discount provides a justification that increases the likelihood of hedonic purchases but has little impact on utilitarian consumption the article concludes with a discussion of managerial implications of the findings

why focusing on the similarity of substitutes leaves a lot to be desired consumers frequently choose substitutes for products that are out of stock unavailable too unhealthy or too expensive a series of studies shows that focusing on differences between the substitute and the unattained alternative reduces the consumer s desire for the unattained alternative more than focusing on similarities between them whether consumers were dieting listening to songs or consuming snacks in the lab focusing on differences reduced their desire for the unattained alternative and subsequent consumption of this item after consuming the substitute more than focusing on similarities this suggests that consumers can reduce overconsumption by focusing on how the substitutes they consume differ from the alternatives they wish to avoid

overchoice and assortment type when and why variety backfires almost universally research and practice suggest that a brand that increases its product assortment or variety should benefit through increased market share in this paper we show this is not always the case we introduce the construct assortment type and demonstrate that the effect of assortment size on brand share is systematically moderated by assortment type we define an alignable assortment as a set of brand variants that differ along a single compensatory dimension such that choosing from that assortment only requires within attribute trade offs in contrast we define a nonalignable assortment as a set of brand variants that simultaneously vary along multiple noncompensatory dimensions demanding between attribute trade offs in turn we argue that an alignable assortment can efficiently meet the diverse tastes of consumers thereby increasing brand share but that a nonalignable assortment increases both the cognitive effort and the potential for regret faced by a consumer thereby decreasing brand share we term this effect overchoice across three studies we provide evidence of overchoice and tie the effect to the effort and regret brought about by nonalignability in the process we demonstrate that simplification of information presentation reversibility of choice and a reduction in underlying nonalignability serve to reduce or eliminate this effect

hedging and financial fragility in fixed exchange rate regimes currency crises that coincide with banking crises tend to share at least three elements first banks have a currency mismatch between their assets and liabilities second banks do not completely hedge the associated exchange rate risk third there are implicit government guarantees to banks and their foreign creditors this paper argues that the first two features arise from banks optimal response to government guarantees we show that guarantees completely eliminate banks incentives to hedge the risk of a devaluation our model also articulates one reason why governments might be tempted to provide guarantees to bank creditors guarantees lower the domestic interest rate and lead to a boom in economic activity but this boom comes at the cost of a more fragile banking system in the event of a devaluation banks renege on foreign debts and declare bankruptcy

the effect of the affordable care act medicaid expansions on financial wellbeing we examine the effect of the medicaid expansions under the 2010 patient protection and affordable care act aca on consumer financial outcomes using data from a major credit reporting agency for a large national sample of adults we employ the synthetic control method to compare individuals living in states that expanded medicaid to those that did not we find that the medicaid expansions significantly reduced the number of unpaid bills and the amount of debt sent to third party collection agencies among those residing in zip codes with the highest share of low income uninsured individuals our estimates imply a reduction in collection balances of approximately 1 140 among those who gain medicaid coverage due to the aca our findings suggest that the aca medicaid expansions had important financial impacts beyond increasing health care use

to intervene or not to intervene monetary policy and the costs of currency crises abstract in case of speculative attacks the central banks decisions to intervene or not to intervene seem to play an important role for the economic costs of currency crises the central bank can either abstain from intervening or start an intervention which in turn can be successful or unsuccessful therefore an adequate analysis of the costs of currency crises has to take into account three different types of currency crises i an immediate depreciation without any central bank interventions ii a successful defense and iii an unsuccessful attempt to defend the exchange rate we find that the decision of the central bank to intervene or to remain passive is risky if the central bank intervenes and succeeds she can achieve the best growth performance on average however if the interventions are not maintained and the currency depreciates the subsequent output loss is particularly severe abstaining from an intervention yields a scenario with a relatively small drop in output giving in to a speculative attack rather than trying to fight it can thus be a suitable option for a risk averse central bank

bankruptcy as implicit health insurance this paper examines the implicit health insurance that households receive from the ability to declare bankruptcy exploiting multiple sources of variation in asset exemption law i show that uninsured households with a greater financial cost of bankruptcy make higher out of pocket medical payments conditional on the amount of care received in turn i find that households with greater wealth at risk are more likely to hold health insurance the implicit insurance from bankruptcy distorts the insurance coverage decision using a microsimulation model i calculate that the optimal pigovian penalties are three quarters as large as the average penalties under the affordable care act

opportunity cost consideration normatively consumers should incorporate opportunity costs into every decision they make yet behavioral research suggests that consumers consider them rarely if at all this research addresses when consumers consider opportunity costs who considers opportunity costs which opportunity costs spontaneously spring to mind and what the consequences of considering opportunity costs are perceived constraints cue consumers to consider opportunity costs and consumers high in propensity to plan consider opportunity costs even when not cued by immediate constraints the specific alternatives retrieved and the likelihood of retrieval are functions of category structures in memory for a given resource some uses are more typical of the category of possible uses and so are more likely to be considered as opportunity costs consumers who consider opportunity costs are less likely to buy focal options than those who do not when opportunity costs are appealing but no less likely when opportunity costs are unappe

defending against speculative attacks it is risky but it can pay off abstract while currency crises are typically considered to be painful and costly events a closer look reveals that economic developments after a speculative attack differ considerably monetary authorities can play a central role in determining the economic course and costs of currency crises they have to decide whether to defend or not to defend the domestic currency giving rise to three different types of crises i an immediate depreciation if the central bank does not intervene and either ii a successful defense or iii an unsuccessful defense in the case of an intervention we find that a central bank has two options to mitigate the costs of speculative attacks namely an immediate depreciation and a successful defense if a central bank intervenes she might be able to stabilize the exchange rate only temporarily and risks to ultimately fail facing the worst of the three scenarios with the highest economic costs

opportunity cost neglect to properly consider the opportunity costs of a purchase consumers must actively generate the alternatives that it would displace the current research suggests that consumers often fail to do so even under conditions promoting cognitive effort various cues to consider opportunity costs reduce purchase rates and increase the choice share of more affordable options sensitivity to such cues varies with chronic dispositional differences in spending attitudes we discuss the implications of these results for the marketing strategies of economy and premium brands

delaying the inevitable interest rate defense and balance of payments crises the classical model of balance of payments crises implicitly assumes that the central bank sits passively as international reserves dwindle in practice however central banks typically defend pegs aggressively by raising short term interest rates this paper analyzes the feasibility and optimality of raising interest rates to delay a potential bop crisis interest rate policy works through two distinct channels by raising demand for domestic interest bearing liquid assets higher interest rates tend to delay the crisis higher interest rates however increase public debt service and imply higher future inflation which tends to bring forward the crisis we show that under certain conditions it is feasible to delay the crisis but raising interest rates beyond a certain point may actually hasten the crisis a similar nonmonotonic relationship emerges between welfare and the increase in interest rates it is thus optimal to engage in some active interest rate defense but only up to a certain point i

constructive consumer choice processes consumer decision making has been a focal interest in consumer research and consideration of current marketplace trends e g technological change an information explosion indicates that this topic will continue to be critically important we argue that consumer choice is inherently constructive due to limited processing capacity consumers often do not have well defined existing preferences but construct them using a variety of strategies contingent on task demands after describing constructive choice consumer decision tasks and decision strategies we provide an integrative framework for understanding constructive choice review evidence for constructive consumer choice in light of that framework and identify knowledge gaps that suggest opportunities for additional research

the value of medicaid interpreting results from the oregon health insurance experiment we develop frameworks for welfare analysis of medicaid and apply them to the oregon health insurance experiment across different approaches we estimate low income uninsured adults willingness to

when is it optimal to abandon a fixed exchange rate the influential krugman flood garber kfg model of balance of payment crises assumes that a fixed exchange rate is abandoned if and only if international reserves reach a critical threshold value from a positive standpoint the kfg rule is at odds with many episodes in which the central bank has plenty of international reserves at the time of abandonment we study the optimal exit policy and show that from a normative standpoint the kfg rule is generally suboptimal we consider a model in which the fixed exchange rate regime has become unsustainable due to an unexpected increase in government spending we show that when there are no exit costs it is optimal to abandon immediately when there are exit costs the optimal abandonment time is a decreasing function of the size of the fiscal shock for large fiscal shocks immediate abandonment is optimal our model is consistent with evidence suggesting that many countries exit fixed exchange rate regimes with still plenty of international reserves in the central bank s vault copyright 2008 wiley blackwell

overcoming the early entrant advantage the role of alignable and nonalignable differences prior research has focused on early entrant advantage rather than on theories that explain and predict how late entrants can surpass the early entrant s performance in this research the authors p

asset prices and twin crises abstract emerging market crises have been characterized by two key features i banking crises generally precede currency crises and ii asset prices decline in advance of currency crises this paper argues that asset prices provide a key link between banking and currency crises it is shown that a prospective currency crisis due to an unanticipated increase in the public debt triggers an asset price decline banks exposure to asset prices in turn deteriorates their balance sheets and precipitates a banking crisis under the assumption of government bailout of banks it is shown that the twin crises are self fulfilling and their time line follows i and ii described above the timing of currency crisis is decreasing in the ratio of government s bailout to banks loss of capital

the credit consequences of unpaid medical bills abstract this paper quantifies the costs of leaving medical bills unpaid and what these costs imply for the value of health insurance to beneficiaries we argue that a large fraction of unpaid medical bills is sent to third party collections and reported to credit bureaus with detrimental effects on patients credit outcomes combining a large panel of credit records with data on credit offers we find that the aca medicaid expansion reduced newly reported medical collections by 5 89 billion and led to better terms of credit we find that the financial benefits of medicaid at least double when including this indirect credit channel

banks and macroeconomic disturbances under predetermined exchange rates abstract as the recent mexican crisis vividly illustrates latin american countries often go through boom bust cycles caused by both domestic policies and external shocks such cycles are typically magnified by weak banking systems which intermediate large capital inflows this paper develops a simple optimizing model to analyze how the banking sector affects the propagation of shocks in particular we show how the world business cycle and shocks to the banking system affect output and employment through fluctuations in bank credit we also analyze the countercyclical use of reserve requirements econometric evidence for chile and mexico supports the main predictions of the model

health insurance and the consumer bankruptcy decision evidence from expansions of medicaid abstract anecdotal evidence and several observational studies suggest that out of pocket medical costs are pivotal in a large fraction of consumer bankruptcy decisions in this paper we assess the contribution of medical costs to household bankruptcy risk by exploiting plausibly exogenous variation in publicly provided health insurance using cross state variation in medicaid expansions from 1992 to 2004 we find that a 10 percentage point increase in medicaid eligibility reduces personal bankruptcies by 8 with no evidence that business bankruptcies are similarly affected we interpret our findings with a model in which health insurance imperfectly substitutes for other forms of financial protection and we use the model to present simple calibration results which illustrate how our reduced form parameter estimate affects the optimal level of health insurance benefits we conclude with calculations which suggest that out of pocket medical costs are pivotal in roughly 26 of personal bankruptcies among low income households

the oregon health insurance experiment evidence from the first year in 2008 a group of uninsured low income adults in oregon was selected by lottery to be given the chance to apply for medicaid this lottery provides an opportunity to gauge the effects of expanding access to public health insurance on the health care use financial strain and health of low income adults using a randomized controlled design in the year after random assignment the treatment group selected by the lottery was about 25 percentage points more likely to have insurance than the control group that was not selected we find that in this first year the treatment group had substantively and statistically significantly higher health care utilization including primary and preventive care as well as hospitalizations lower out of pocket medical expenditures and medical debt including fewer bills sent to collection and better self reported physical and mental health than the control group

context dependent preferences the standard theory of choice based on value maximization associates with each option a real value such that given an offered set the decision maker chooses the option with the highest value despite its simplicity and intuitive appeal there is a growing body of data that is inconsistent with this theory in particular the relative attractiveness of x compared to y often depends on the presence or absence of a third option z and the market share of an option can actually be increased by enlarging the offered set we review recent empirical findings that are inconsistent with value maximization and present a context dependent model that expresses the value of each option as an additive combination of two components a contingent weighting process that captures the effect of the background context and a binary comparison process that describes the effect of the local context the model accounts for observed violations of the standard theory and provides a framework for analyzing context dependent p

output costs currency crises and interest rate defence of a peg central banks typically raise short term interest rates to defend currency pegs higher interest rates however often lead to a credit crunch and an output contraction we model this trade off in an optimising first generation model in which the crisis may be delayed but is ultimately inevitable we show that higher interest rates may delay the crisis but raising interest rates beyond a certain point may actually bring forward the crisis due to the large negative output effect the optimal interest rate defence involves setting high interest rates relative to the no defence case both before and at the moment of the crisis

global credit supply shocks and exchange rate regimes abstract the recent global financial crisis has re emphasized the need for better understanding the relation between the type of exchange rate regime err in place and the effects of global credit supply shocks recent advances in the measurement of such shocks and their large realizations in the recent financial crisis produce a suitable quasi natural experiment for studying this relation toward this end i use err classification data for a panel of 40 emerging market economies emes to establish the following main findings output responds significantly more adversely to contractionary global credit supply shocks in the fixed err than in the non fixed err deleveraging and the fall in imports are much more severe in the fixed err and the lack of exchange rate depreciation in the fixed err is accompanied by a stronger fall in exports these results are broadly consistent with predictions from models which include both the expenditure switching channel and the balance sheet channel of exchange rate depreciation where the latter channel effectively becomes expansionary rather than contractionary as commonly thought owing to favorable effects of the expenditure switching channel on balance sheets asset side

the aggregate effects of health insurance evidence from the introduction of medicare this paper investigates the effects of market wide changes in health insurance by examining the single largest change in health insurance coverage in american history the introduction of medicare in 1965 i estimate that the impact of medicare on hospital spending is over six times larger than what the evidence from individual level changes in health insurance would have predicted this disproportionately larger effect may arise if market wide changes in demand alter the incentives of hospitals to incur the fixed costs of entering the market or of adopting new practice styles i present some evidence of these types of effects a back of the envelope calculation based on the estimated impact of medicare suggests that the overall spread of health insurance between 1950 and 1990 may be able to explain about half of the increase in real per capita health spending over this time period

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

consumer choice strategies for comparing noncomparable alternatives research on consumer choice has focused on easily comparable alternatives a subset of the choices consumers regularly face this paper outlines the problem and two general strategies for comparing noncomparable alternatives a subset of choices that has been overlooked in the literature experiments are reported that support use of the strategies

currency crises with the threat of an interest rate defence while virtually all currency crisis models recognise that the decision to abandon a peg depends on how tenaciously policy makers defend it this is seldom modelled explicitly we add the threat of an interest rate defence to the global game model of morris and shin american economic review 88 1998 with an endogenous defence actions of speculators may become strategic substitutes instead of the usual complements nevertheless our generalised model remains tractable and has a unique threshold equilibrium it provides additional insights for instance the threat of an interest rate defence makes speculation riskier and this may be sufficient to keep speculators out when fundamentals are still relatively strong

product level choice a top down or bottom up process examination of the process by which consumers form decision criteria and subsequently evaluate and choose product level alternatives when purchase goals are well defined indicates that decision criteria are formulated in a goal driven top down fashion rather than a product driven bottom up fashion evaluation of alternatives follows a within product strategy as opposed to a within attribute strategy and is characterized by less reliance on price information than reported in previous research even without a specific goal for product decisions the formation and utilization of decision criteria did not follow the bottom up process alternative explanations are offered for these contrasts along with implications for future research on product level decisions

what did medicare do the initial impact of medicare on mortality and out of pocket medical spending abstract we study the impact of the introduction of one of the major pillars of the social insurance system in the united states the introduction of medicare in 1965 our results suggest that in its first 10 years the establishment of universal health insurance for the elderly had no discernible impact on elderly mortality however we find a substantial reduction in the elderly s exposure to out of pocket medical expenditure risk specifically we estimate that the introduction of medicare was associated with a 40 decline in out of pocket spending for the top quartile of the out of pocket spending distribution a stylized expected utility framework suggests that the welfare gains from such reductions in risk exposure alone may be sufficient to cover almost two fifths of the costs of medicare these findings underscore the importance of considering the direct insurance benefits from public health insurance programs in addition to any indirect benefits from an effect on health

an interest rate defense of a fixed exchange rate defending a government s exchange rate commitment with active interest rate policy is not an option in first generation models of speculative attacks in those models the interest rate is the passive reflection of currency depreciation expectations in this paper we show how to adapt the first generation framework to allow for an interest rate defense it is shown that increasing domestic currency interest rate before the attack makes domestic assets more attractive according to an asset substitution effect but weakens the domestic currency by increasing the government s fiscal liabilities as a result an interest rate defense can be successful only conditional on sound fiscal policy

economic costs of alternative monetary policy responses to speculative currency attacks abstract the outcome of a speculative attack on the foreign exchange rate can be classified into three cases i immediate depreciation of the nominal exchange rate ii successful defense or iii failed defense this paper explores which of these outcomes yields the lowest cost in terms of output and unemployment in the short and medium run ex ante the outcome of a speculative attack is uncertain therefore the appropriate response of monetary authorities to a speculative attack depends on the cost of an immediate depreciation compared with that of the expected outcome of a currency defense our empirical analysis focuses on a sample of 73 emerging and developing countries over the 1960 2011 period our results indicate that an immediate depreciation is the policy response that is associated with a lower expected output loss and unemployment in the short run and it tends to be expansionary in the medium run a defense if successful entails insignificant costs in the short run but unlike an immediate depreciation a successful defense is not expansionary in the medium run if a defense fails large output losses and an increase in unemployment ensue at least in the short run

borrowing on the wrong credit card evidence from mexico abstract we establish new facts about the way consumers allocate debt among their credit cards using data for a representative sample of cardholders in mexico we find that relative prices are weak predictors of the allocation of debt purchases and payments consumers allocate a large fraction of their debt to high interest cards incurring a cost of 31 percent above the minimum using an experiment we find that consumers do not substitute in the price margin although they respond to salient temporary low interest offers we conclude that limited attention and mental accounting best rationalize our results and discuss implications for the market jel d14 g21 o12 o16

collapsing exchange rate regimes some linear examples abstract we construct a pair of linear examples to study the collapse time of a fixed exchange rate regime the first example is a perfect foresight continuous time model which allows calculation of the exact collapse time and the tracking of reserves the second example is a discrete time stochastic model which yields an endogenous probability distribution over the collapse time and produces a forward discount of the exchange rate

the effect of health insurance on home payment delinquency evidence from aca marketplace subsidies abstract we use administrative tax data and survey responses to quantify the effect of subsidized health insurance on rent and mortgage delinquency we employ a regression discontinuity rd design exploiting the income threshold for receiving marketplace subsidies in states that did not expand medicaid under the affordable care act among households targeted by the policy eligibility for subsidies is associated with a roughly 25 decline in the delinquency rate and reduced exposure to out of pocket medical expenditure risk iv treatment effects are significant indicating that the decline in the delinquency rate is related to participation in health insurance we show that under plausible assumptions the social benefits implied by our rd estimates in terms of fewer evictions and foreclosures are substantial

do high interest rates defend currencies during speculative attacks abstract do high interest rates defend currencies during speculative attacks or do they have the perverse effect of increasing the probability of a devaluation of the currency under attack drawing on evidence from a large sample of speculative attacks in developed and developing economies this paper argues that the answer to both questions is no in particular this paper documents a striking lack of any systematic association whatsoever between interest rates and the outcome of speculative attacks the lack of clear empirical evidence on the effects of high interest rates during speculative attacks mirrors the theoretical ambiguities on this issue

consumer choice between hedonic and utilitarian goods abstract in this article the authors examine how consumer choice between hedonic and utilitarian goods is influenced by the nature of the decision task building on research on elaboration the authors propose that the relative salience of hedonic dimensions is greater when consumers decide which of several items to give up forfeiture choices than when they decide which item to acquire acquisition choices the resulting hypothesis that a hedonic item is relatively preferred over the same utilitarian item in forfeiture choices than in acquisition choices was supported in two choice experiments in a subsequent experiment these findings were extended to hypothetical choices in which the acquisition and forfeiture conditions were created by manipulating initial attribute level reference states instead of ownership finally consistent with the experimental findings a field survey showed that relative to market prices owners of relatively hedonic cars value their vehicles more than do owners of relat

fiscal and monetary policies and the cost of sudden stops abstract this article investigates the effects of monetary and fiscal policies on output growth during sudden stop balance of payments crisis in emerging markets and developing countries sudden stops in capital flows and subsequent deep recessions are a frequent occurrence in these countries but there is no professional consensus and little systematic empirical evidence shedding light on the macroeconomic policy mix most likely to limit output losses during these episodes to address this issue we investigate 83 sudden stop crisis in 66 countries using a baseline empirical model to control for the various determinants of output losses during sudden stops we measure the marginal effects of policy on output losses and find strong evidence that monetary tightening rise in the discount rate or unsterilized rise in international reserves and discretionary fiscal contraction are significantly correlated with larger output losses following a sudden stop fiscal expansion is associated with smaller output losses following a sudden stop but monetary expansion has no discernable effect the macroeconomic policy mix associated with the least output loss during a sudden stop financial crisis is a discretionary fiscal expansion combined with a neutral monetary policy

spending time versus spending money we find systematic differences in the way that people spend time versus money ex post people are able to more easily accommodate negative outcomes by adjusting the value of their temporal inputs ex ante people are willing to spend more time for higher risk higher return options whereas when spending money the pattern is reversed and the more standard pattern of increasing risk aversion is observed although accurate assessment of the opportunity costs of time is key to making good decisions ambiguity in the value of time promotes accommodation and rationalization

a generalized utility model of disappointment and regret effects on post choice valuation in this paper we show that performance information about forgone alternatives i e alternative that were considered but not chosen can have a significant impact on post choice valuation our approach introduces a new and parsimonious way of looking at satisfaction that combines the literature on post choice valuation with research regarding generalized expected utility theory while the post valuation literature focuses on the selected brand as the valuation s basis e g anderson and sullivan anderson e w m w sullivan 1993 the antecedents and consequences of customer satisfaction for firms marketing sci 12spring 125 143 bolton and drew bolton r j drew 1991 a multistage model of customers assessments of service quality and value j consumer res 17 375 384 we draw on a stream of research in generalized expected utility theory that considers both chosen and forgone alternatives as the basis for valuation e g bell bell d 1983 risk premiums for decision regret management sci 29 1156 1166 and bell d 1985 disappointment in decision making under uncertainty oper res 33 1 27 loomes and sugden loomes g r sugden 1982 regret theory an alternative theory of rational choice under uncertainty the econom j 92 805 824 and loomes g r sugden 1986 disappointment and dynamic consistency in choice under uncertainty rev econom stud 53 271 282 the result is a combined model of post choice valuation that explicitly incorporates both concepts specifically we extend the existing paradigm of post choice valuation to include buyers regret concerning forgone alternatives proposing a generalized utility theory based treatment of post choice product assessment that uses the intuitively appealing concepts of disappointment and regret as the basis we propose a model for conceptualizing post choice valuation that is consistent with the existing literature discuss how this model extends the construct to consider the influence of forgone alternatives and report results of an empirical test that contrasts our model to important recent work in the area e g boulding et al boulding w a kalra r staelin v a zeithaml 1993 a dynamic process model of service quality from expectations to behavioral intentions j marketing res 30february 7 27 our generalized model of post choice valuation is based on the sum of three components that represent factors that may contribute to consumers assessment of a chosen product or service the first component is expected performance the second component is disappointment which captures the discrepancy between actual and expected performance much as the disconfirmation construct in traditional satisfaction research the third component is regret which captures the difference between the performance of the chosen product service and the performance of a forgone product service this perspective is useful in that risk is captured by the disappointment and regret terms providing an intuitively appealing decomposition of post choice valuation and offering several advances over previous representations of disappointment and regret we test our model via a choice experiment participants in the empirical study were asked to make choices between successive lottery pairs they were then given outcome feedback on the forgone alternative as well as on the chosen alternative in each lottery pair immediately following outcome feedback for each choice subjects were asked to evaluate their decision our results clearly suggest an effect of regret on post choice valuation information about the forgone alternative influenced subjects valuation of the chosen alternative we also find evidence that as predicted the effects of disappointment and regret on post choice valuation are asymmetric specifically the negative effect of disappointment on post choice valuation was greater than the positive effect of elation similarly the negative effect of regret was greater than the positive impact of rejoicing our research offers five contributions to the literature on post choice valuation first our results illustrate the advantage of using generalized utility theory as the basis for conceptualizing and modeling post choice valuation we derive a model of post choice valuation that formally captures the components of disappointment and regret and show that the outcome of both the chosen alternative through disappointment and a forgone alternative through regret can influence the chosen alternative s valuation second we formally integrate the concepts of disappointment and regret which have been examined separately for many years into a single model based on a multiattribute preference structure third we argue that the effects of disappointment and regret on post choice valuation are asymmetric and present empirical evidence in this regard fourth our results suggest that word of mouth regarding forgone alternatives may affect post choice valuation extending research that has not heretofore considered forgone outcomes role in this process finally our development provides a preconsumption measure of potential disappointment and regret in modeling choice at the time of choice consumers may visualize the feelings of disappointment and or regret that will be derived at consumption taking into account both the chosen brand and forgone brands our generalized utility theory based approach to the post choice valuation construct can be useful in examining the role of disappointment and regret as preconsumption constructs

prospective deficits and the asian currency crisis this paper argues that a principal cause of the 1997 asian currency crisis was large prospective deficits associated with implicit bailout guarantees to failing banking systems the expectation that these future deficits would be at least partially financed by seigniorage revenues or an inflation tax on outstanding nominal debt led to a collapse of the fixed exchange rate regimes in asia we articulate this view using a simple model whose key feature is that a speculative attack is inevitable once the present value of future government deficits rises we present empirical evidence in support of the key assumptions underlying our interpretation of the crisis