the causes of preference reversal observed preference reversal cannot be adequately explained by violations of independence the reduction axiom or transitivity the primary cause of preference reversal is the failure of procedure invariance especially the overpricing of low probability high payoff bets this result violates regret theory and generalized nonindependent utility models preference reversal and a new reversal involving time preferences are explained by scale compatibility which implies that payoffs are weighted more heavily in pricing than in choice copyright 1990 by american economic association

does adding up of economic capital for market and credit risk amount to conservative risk assessment there is a tradition in the banking industry of dividing risk into market risk and credit risk both categories are treated independently in the calculation of risk capital but many financial positions depend simultaneously on both market risk and credit risk factors in this case an approximation of the portfolio value function separating value changes into a pure market risk plus pure credit risk component can result not only in an overestimation but also in an underestimation of risk we discuss this compounding effect in the context of foreign currency loans and argue that a separate calculation of economic capital for market risk and for credit risk may significantly underestimate true risk

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

the denomination effect labeled the denomination effect study 1 shows in three field studies that the likelihood of spending is lower when an equivalent sum of money is represented by a single large denomination e g one 20 bill relative to many smaller denominations e g 20 1 bills in two of the three field studies individuals spent more once the decision to spend had been made study 2 then shows that consumers deliberately choose to receive money in a large denomination relative to small denominations when there is a need to exert self control in spending study 3 further shows that the denomination effect is contingent on individual differences in people s desire to reduce the pain of paying associated with spending the results suggest that the denomination effect occurs because large denominations are psychologically less fungible than smaller ones allowing them to be used as a strategic device to control and regulate spending

a vector autoregressive model for electricity prices subject to long memory and regime switching abstract a regime dependent var model is suggested that allows long memory fractional integration in each of the observed regime states as well as the possibility of fractional cointegration the model is motivated by the dynamics of electricity prices where the transmission of power is subject to occasional congestion periods for a system of bilateral prices non congestion means that electricity prices are identical whereas congestion makes prices depart hence the joint price dynamics implies switching between a univariate price process under non congestion and a bivariate price process under congestion at the same time it is an empirical regularity that electricity prices tend to show a high degree of long memory and thus that prices may be fractionally cointegrated analysis of nord pool data shows that even though the prices are identical under non congestion the prices are not in general fractionally cointegrated in the congestion state hence in most cases price convergence is a property following from regime switching rather than a conventional error correction mechanism finally the suggested model is shown to deliver forecasts that are more precise compared to competing models

licensing effect in consumer choice abstract most choices in the real world follow other choices or judgments the authors show that a prior choice which activates and boosts a positive self concept subsequently licenses the choice of a more self indulgent option the authors propose that licensing can operate by committing to a virtuous act in a preceding choice which reduces negative self attributions associated with the purchase of relative luxuries five studies demonstrate the proposed licensing effect of a prior commitment to a virtuous act on subsequent choice consistent with the authors theory the preference for an indulgent option diminishes if the licensing task is attributed to an external motivation the authors also report a mediation analysis in support of their theoretical explanation that the licensing effect operates by providing a temporary boost in the relevant self concept

combining day ahead forecasts for british electricity prices abstract this paper considers how well the approach of combining forecasts extends to the context of electricity prices with the increasing popularity of regime switching and time varying parameter models for predicting power prices the multi model and evolutionary considerations that usually support the combining of simpler time series methods may be less applicable when the individual models incorporate these features we address this question with a backtesting analysis on british day ahead prices furthermore given the volatility of power prices and concerns about accurate forecasting under extreme price excursions we evaluate the results using various error metrics including expected shortfall the comparisons are furthermore carefully simulated to consider model selection uncertainty in order to realistically test the value of combining as an ex ante policy overall our results support combining for both accurate operational planning and risk management

linking loss aversion and present bias with overspending behavior of tourists insights from a lab in the field experiment abstract building upon prospect theory and hyperbolic time discounting models we explore how behavioral factors influence the probability of overspending among outbound leisure travelers we construct our data in two steps first we collect demographics and travel related variables from a random sample of 314 singaporean tourists across different age groups and income levels second we conduct a field experiment to measure their risk and time preferences specifically loss aversion and present bias we then explore the link between the measured preferences to overspending behavior the findings reveal an interesting link between loss aversion present bias and traveling expenditure patterns outbound tourists with high loss aversion and high present bias are more likely to overspend finally our study also highlights the role of group identity in de biasing specifically individuals are more likely to behave according to standard economic models when making decisions in groups

please or squeeze brand performance implications of constrained and unconstrained multi item promotions existing research on price promotions typically investigates the effects of single product promotions however brand managers often promote multiple items simultaneously to bolster the performance of a complete brand line this paper investigates the brand performance implications of such multi item promotions we distinguish between two types of multi item promotions traditional unconstrained multi item promotions that grant a discount irrespective of the size or composition of the purchase set and constrained multi item promotions that require consumers to purchase specific quantities self bundling or even predetermined combinations fixed bundling of promoted items using a normative consumer decision model the authors analyze the relative effectiveness of these promotions in terms of unit sales and revenue impact and show that promotion performance is moderated by consumers preference for variety the authors find that unconstrained multi item promotions outperform single item promotions especially in markets without variety seeking in markets with variety seeking unconstrained multi item promotions are not as effective in stealing extra sales from competition because consumers prefer to spread their purchases across all items including competitive ones however in those markets self bundling promotions are particularly effective because they force consumers to adopt larger amounts of the promoted items at the expense of competitors finally in neither type of market does fixed bundling substantially improve promotion performance

risk factor contributions in portfolio credit risk models abstract determining contributions to overall portfolio risk is an important topic in risk management for positions instruments and sub portfolios this problem has been well studied and a significant theory built around the calculation of marginal contributions we consider the problem of determining the contributions to portfolio risk of risk factors this cannot be addressed through an immediate extension of techniques for position contributions since the portfolio loss is a nonlinear function of the risk factors we employ the hoeffding decomposition of the portfolio loss into a sum of terms depending on the factors this decomposition restores linearity but includes terms arising from joint effects of groups of factors these cross factor terms provide information to risk managers since they can be viewed as best hedges of the portfolio loss involving instruments of increasing complexity we illustrate the technique on multi factor portfolio credit risk models where systematic factors represent industries geographical sectors etc

tourists spending and adherence to shopping plans the case of the christmas market in merano italy abstract the present paper investigates the determinants of tourists expenditure by categorizing tourists based on their mental budgets individuals can be divided into three categories based on the difference between their mental budget and actual expenditure underspenders on budget spenders and overspenders estimation of the empirical model is performed based on data collected through a survey of visitors to the christmas market in merano italy during advent in 2011 the estimation is performed with the heckman estimator ordered probit selection rule and linear regression we find that the spending patterns of visitors belonging to the three identified categories differ significantly analyzing visitors expenditure based on the proposed categorization allows us to identify category specific factors and develop management strategies for each category the managerial and theoretical implications of the results are discussed

a spot forward model for electricity prices with regime shifts 2014 elsevier b v all rights reserved this is the authors manuscript preprint to the article

paying too much and being happy about it existence causes and consequences of tariff choice biases abstract a common assumption underlying the analysis of consumers choices among optional tariffs is that consumers choose the tariff that maximizes their surplus and thus the tariff that leads to the lowest billing rate for a given amount of usage yet there is evidence that many users prefer a flat rate even though their billing rate would be lower with a pay per use tariff flat rate bias and some users prefer a pay per use tariff even though they would save money with a flat rate pay per use bias the authors conduct four empirical analyses based on three different data sets they show that the flat rate bias is more important and has a greater regularity and time persistence than the pay per use bias they classify potential causes of the flat rate bias as insurance effect taxi meter effect convenience effect and overestimation effect and show that the insurance the taxi meter and the overestimation effects lead to a flat rate bias they provide evidence that underestimation of usag

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

the influence of price discount framing on the evaluation of a product bundle bundle offers consisting of two or more products often include a price discount the impact of the price discount on the perceived attractiveness of the bundle has been shown to depend on which product is discounted it has been argued that discounts are more effective when they are assigned to the product that will receive the most weight in the overall evaluation of the bundle we propose that the perceived value of the discount may also depend on a referent specific to each product six studies are used to provide evidence that 1 price discount framing effects can be explained by reference dependence and 2 that reference dependence and product importance independently contribute to price discount framing effects

variance stabilizing transformations for electricity spot price forecasting most electricity spot price series exhibit price spikes these extreme observations may significantly impact the obtained model estimates and hence reduce efficiency of the employed predictive algorithms for markets with only positive prices the logarithmic transform is the single most commonly used technique to reduce spike severity and consequently stabilize the variance however for datasets with very close to zero like the spanish or negative like the german prices the log transform is not feasible what reasonable choices do we have then to address this issue we evaluate 16 variance stabilizing transformations within a comprehensive forecasting study involving two model classes regression models neural networks and 12 datasets from diverse power markets we show that the probability integral transform combined with the standard gaussian distribution yields the best approach significantly better than many of the considered alternatives

the impact of renewable energy forecast errors on imbalance volumes and electricity spot prices abstract this paper contributes to the general consideration of whether a policy of incentivising system operators to improve the quality and market availability of forecasts for renewable energy outputs would be beneficial using data from the german electricity market we investigate the effect of wind and solar energy forecasts errors on imbalance volumes and subsequent spot electricity prices we use ordinary least squares regression quantile regression and autoregressive moving averages to identify these relationships using variables that have a quarter hourly data granularity the results show that higher wind and solar forecast errors increase the absolute values of imbalance volumes and that these can pass through into higher spot prices we find that wind forecast errors in germany impact spot prices more than solar forecasting errors policy incentives to improve the accuracy and availability of renewable energy forecasts by the system operators should therefore be encouraged

how variety seeking versus inertial tendency influences the effectiveness of immediate versus delayed promotions abstract four studies investigate 1 whether a variety seeking versus inertial environment activates a certain mind set about risk propensity and 2 whether this mind set influences preferences for immediate versus delayed promotions study 1 demonstrates that a variety seeking environment activates a risk taking mind set whereas an inertial environment activates a risk averse mind set and that such a difference in risk propensity makes a delayed immediate promotion relatively more appealing for consumers with a variety seeking inertial tendency study 2 reveals that preferences for a brand offering a delayed promotion are stronger when consumers have a variety seeking tendency and that preferences of consumers low vs high in need for cognitive closure are more influenced by the difference in variety seeking versus inertial tendency study 3 provides further insights by allowing participants to be variety seeking or inertial and by controlling for redemption effort and the hedonic utilitarian as

mental accounting and changes in price the frame dependence of reference dependence mental accounting principles for multiple events were replicated and then extended to pricing situations that were designed to moderate these principles if reference dependence is proportional i e if consumers evaluate events in terms of proportional deviations from reference states rather than raw deviations prices were stated with or without popular percentage based pricing frames such as 33 off mental accounting principles generally prevailed in the absence of percentage based frames however percentage based frames altered two principles and increased tendencies toward the others the findings demonstrate that mental accounting principles price perception and reference dependence are sensitive to the ways in which deviations from reference states are framed

static modeling of dynamic recreation behavior implications for prediction and welfare estimation abstract this paper examines the consequences of using a static model of recreation trip taking behavior when the underlying decision problem is dynamic specifically we examine the implications for trip forecasting and welfare estimation using a panel dataset of lake michigan salmon anglers for the 1996 and 1997 fishing seasons we derive and estimate both a structural dynamic model using bellman s equation and a reduced form static model with trip probability expressions mimicking those of the dynamic model we illustrate an inherent identification problem in the reduced form model that creates biased welfare estimates and we discuss the general implications of this for the interpretation of preference parameters in static models we then use both models to simulate trip taking behavior and show that although their in sample trip forecasts are similar their welfare estimates and out of sample forecasts are quite different

electricity price forecasting using sale and purchase curves the x model abstract our paper aims to model and forecast the electricity price by taking a completely new perspective on the data it will be the first approach which is able to combine the insights of market structure models with extensive and modern econometric analysis instead of directly modeling the electricity price as it is usually done in time series or data mining approaches we model and utilize its true source the sale and purchase curves of the electricity exchange we will refer to this new model as x model as almost every deregulated electricity price is simply the result of the intersection of the electricity supply and demand curve at a certain auction therefore we show an approach to deal with a tremendous amount of auction data using a subtle data processing technique as well as dimension reduction and lasso based estimation methods we incorporate not only several known features such as seasonal behavior or the impact of other processes like renewable energy but also completely new elaborated stylized facts of the bidding structure our model is able to capture the non linear behavior of the electricity price which is especially useful for predicting huge price spikes using simulation methods we show how to derive prediction intervals for probabilistic forecasting we describe and show the proposed methods for the day ahead epex spot price of germany and austria

seller beware how bundling affects valuation abstracthow does bundling affect valuation this research proposes the asymmetry hypothesis in the valuation of bundles consumers demand more compensation for the loss of items from bundles compared with the loss of the same items in isolation yet they express lower willingness to pay for items added to bundles compared with the same items purchased separately this asymmetry persists because bundling causes consumers to perceive multiple items as a single inseparable gestalt unit thus consumers resist altering the whole of the bundle by removing or adding items six studies demonstrate this asymmetry across judgments of monetary value studies 1 and 2 and dis satisfaction study 3 moreover bundle composition the ability of different items to create the impression of a whole moderates the effect of bundling on valuation study 4 and the need to replace missing items i e restoring the whole mediates the effect of bundling on compensation demanded for losses study 5 finally the a

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

magnitude time and risk differ similarly between joint and single evaluations arguably all choice options involve three basic attributes magnitude outcome size time of occurrence and probability of occurrence and are evaluated in one of two basic evaluation modes je joint evaluation involving comparison of multiple options and se single evaluation without comparison this research explores how reactions to the three basic attributes and their associated functions utility time discounting and probability weighting vary between the two basic evaluation modes nine studies tapping diverse contexts yield two general results first for all these attributes people are more sensitive to variations near endpoints zero magnitude no delay and 0 or 100 probability than in other regions and this differential sensitivity is more pronounced in se than in je second when faced with options involving a trade off between magnitude and time delay or between magnitude and probability risk people are both more delay averse and more risk averse in se than in je

the bottom dollar effect the influence of spending to zero on pain of payment and satisfaction spending that exhausts a budget is shown to decrease satisfaction with purchased products relative to spending when resources remain in the budget six studies including those in which participants earn and spend real resources and evaluate real products explore this bottom dollar effect this research contributes to prior mental accounting research regarding how costs influence decision making e g bundling coupling sunk costs and to the satisfaction literature supporting the role of pain of payment in this process we show that the bottom dollar effect increases as effort required to earn budgetary resources increases decreases in the presence of windfall gains and decreases when there is less time between budget exhaustion and replenishment mediation analyses further demonstrate the role of payment pain in the bottom dollar effect implications are discussed in the context of behavioral research marketing promotions management and public policy

decision making in electrical appliance use in the home this paper presents the results of a survey as well as an argument from the viewpoint of behavioral economics with the aim of clarifying how consumers make decisions about electrical appliance use in the home a survey of consumers showed that most have little awareness of the energy efficiency of appliances the price of the services produced by electrical appliances or electricity rates these findings indicate that price does not function as a signal in electricity consumption through electrical appliance use rather we found that consumer decision making in electricity consumption is dependent on the characteristics of the particular electrical appliances they use additionally we argue that the payment system for home electricity consumption plays an important role in decision making causing biases due to aspects of human psychology discussed here in terms of satisficing and heuristics payment decoupling and budgeting we conclude that decision making about electrical appliance use and electricity consumption in the home is not always rational and is affected both by the particular characteristics of appliances and the payment system for electricity consumption along with human psychology

consumer evaluations of multiple versus single price change this article examines how consumer evaluations of multiple price changes differ from the evaluation of a single price change of an equal amount consistent with r thaler s theory about segregation versus integration of gains and losses we find that multiple price decreases are evaluated more favorably than a single price decrease and multiple price increases are evaluated more unfavorably than a single price increase however these effects are moderated by consumer price uncertainty and relative magnitude of the prices being evaluated because price uncertain consumers consider higher ranges of prices acceptable they are less unfavorable to multiple price increases and more favorable to multiple price decreases than certain consumers moreover when the magnitude of one price is very small relative to other prices consumers preference for multiple price decreases relative to a single price decrease is reduced however this effect is not found when there are price increases

the effect of payment schemes on inventory decisions the role of mental accounting does the payment scheme have an effect on inventory decisions in the newsvendor problem keeping the net profit structure constant we examine three payment schemes that can be interpreted as the newsvendor s order being financed by the newsvendor herself scheme o by the supplier through delayed order payment scheme s and by the customer through advanced revenue scheme c in a laboratory study we find that inventory quantities exhibit a consistent decreasing pattern in the order of schemes o s and c with the order quantities of scheme s being close to the expected profit maximizing solution these observations are inconsistent with the expected profit maximizing model contradict what a regular or hyperbolic time discounting model would predict and cannot be explained by the loss aversion model instead they are consistent with a model that underweights the order time payments which can be explained by the prospective accounting theory in the mental accounting literature a second study shows that the results hold even if all physical payments are conducted at the same time suggesting that the framing of the payment scheme is sufficient to induce the prospective accounting behavior we further validate the robustness of our model under different profit conditions our findings contribute to the understanding of the psychological processes involved in newsvendor decisions and have implications for supply chain financing and contract design this paper was accepted by christian terwiesch operations management

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

consumers price sensitivities across complementary categories in this paper we examine the pattern of correlation among consumer price sensitivities for customer purchase incidence decisions across complementary product categories we use a hierarchical bayesian multivariate probit model to uncover this pattern we estimated this model using purchase incidence data for six categories involving three pairs of complementary products our results show a new and interesting pattern of correlation among price parameters of complementary products for example we find that the correlation of own price sensitivities of complementary products is negative these results are consistent across the three complementary pairs of products we also investigate the reason for this counterintuitive result finally we present some managerial implications of our model we show how our model can be used for cross category targeting decisions by retailers we find that compared to nontargeted discounting the average profitability gain from customized discounting across the three category pairs is only 1 29 when complementarity is ignored but this gain improves to 8 26 when full complementarity is taken into account we also investigate whether ignoring the complex pattern of correlation has implications for managerial actions regarding targeting and optimal discounting we find that retailers can make misleading inferences about the impact of targeted discounts when they ignore cross category effects in modeling

how construals of money versus time impact consumer charitable giving while past research has suggested that consumers have fundamentally different responses to thinking about money versus time the current work clarifies an important nuance in terms of how consumers construe these two resources we demonstrate that in the domain of charitable giving money is construed relatively more concretely whereas time is construed relatively more abstractly this difference in the construal of these two resources has implications for how appeals for charitable contributions or money versus time should be framed when the construal level at which the consumer considers the cause is aligned misaligned with the construal level of the resource being requested contribution intentions and behaviors increase decrease in addition the moderating role of resource abundance is examined in particular when money is considered abundant vs nonabundant consumers no longer exhibit more concrete thoughts in response to money compared to time finally when the donation request makes consumers think of money in a more abundant manner monetary donations can be successfully motivated with a more abstract call for charitable support the theoretical and practical implications for marketers and charitable organizations are discussed

short and mid term forecasting of baseload electricity prices in the u k the impact of intra day price relationships and market fundamentals in this paper we investigate whether considering the fine structure of half hourly electricity prices the market closing prices of fundamentals natural gas coal and rm co 2 and the system wide demand can lead to significantly more accurate short and mid term forecasts of apx u k baseload prices we evaluate the predictive accuracy of a number of univariate and multivariate time series models over a three year out of sample forecasting period and compare it against that of a benchmark autoregressive model we find that in the short term up to a few business days ahead a disaggregated model which independently predicts the intra day prices and then takes their average to yield baseload price forecasts is the best performer however in the mid term factor models which explore the correlation structure of intra day prices lead to significantly as measured by the diebold mariano test better baseload price forecasts at the same time we observe that the inclusion of fundamental variables especially natural gas prices in the short term and coal prices in the mid term provides significant gains the rm co 2 prices on the other hand generally do not improve the price forecasts at all at least in the time period considered in this study april 2009 december 2013

the fewer the better number of goals and savings behavior abstract this article examines the effect of the number of goals on consumers savings behavior drawing from research on implementation intention the authors show that under certain conditions presenting a single savings goal leads to greater savings intention and actual savings than presenting multiple savings goals multiple goals typically evoke trade offs among competing goals and thus increase the likelihood that people will remain in a deliberative mind set and defer actions in contrast the authors propose and demonstrate that a single goal evokes a stronger implementation intention which in turn has a greater effect on behavior change they also show that the advantage of a single goal over multiple goals on saving is attenuated when saving is easier to implement or when the multiple savings goals are integrated rather than competing among themselves theoretical and practical implications are discussed

comparison of extended mean reversion and time series models for electricity spot price simulation considering negative prices abstract this paper evaluates different financial price and time series models such as mean reversion autoregressive moving average arma integrated arma arima and general autoregressive conditional heteroscedasticity garch process usually applied for electricity price simulations however as these models are developed to describe the stochastic behaviour of electricity prices they are extended by a separate data treatment for the deterministic components trend daily weekly and annual cycles of electricity spot prices furthermore price jumps are considered and implemented within a regime switching model since 2008 market design allows for negative prices at the european energy exchange which also occurred for several hours in the last years up to now only a few financial and time series approaches exist which are able to capture negative prices this paper presents a new approach incorporating negative prices the evaluation of the different approaches presented points out that the mean reversion and the arma models deliver the lowest mean root square error between simulated and historical electricity spot prices gained from the european energy exchange these models posses also lower mean average errors than garch models hence they are more suitable to simulate well fitting price paths furthermore it is shown that the daily structure of historical price curves is better captured applying arma or arima processes instead of mean reversion or garch models another important outcome of the paper is that the regime switching approach and the consideration of negative prices via the new proposed approach lead to a significant improvement of the electricity price simulation

choice simplification a theory of mental budgeting and naive diversification we develop a theory of how an agent makes basic multiproduct consumption decisions in the presence of taste consumption opportunity and price shocks that are costly to attend to we establish that the agent often simplifies her choices by restricting attention to a few important considerations which depend on the decision at hand and affect her consumption patterns in specific ways if the agent s problem is to choose the consumption levels of many goods with different degrees of substitutability then she may create mental budgets for more substitutable products e g entertainment in some situations it is optimal to specify budgets in terms of consumption quantities but when most products have an abundance of substitutes specifying budgets in terms of nominal spending tends to be optimal if the goods are complements in contrast then the agent may consistent with naive diversification choose a fixed unconsidered mix of products and if the agent s problem is to choose one of multiple products to fulfill a given consumption need e g for gasoline or a bed then it is often optimal for her to allocate a fixed sum for the need

the time vs money effect shifting product attitudes and decisions through personal connection the results of five field and laboratory experiments reveal a time versus money effect whereby activating time vs money leads to a favorable shift in product attitudes and decisions because time increases focus on product experience activating time vs money augments one s personal connection with the product thereby boosting attitudes and decisions however because money increases the focus on product possession the reverse effect can occur in cases where merely owning the product reflects the self i e for prestige possessions or for highly materialistic consumers the time versus money effect proves robust across implicit and explicit methods of construct activation

correlates of narrow bracketing we examine whether different phenomena of narrow bracketing can be traced back to some common characteristic and whether and how different phenomena are related we find that making dominated lottery choices or ignoring the endowment when making risky choices are related phenomena and are both associated with low levels of cognitive reflection in contrast the phenomena of setting narrow goals or narrow mental budgets seem not to reflect choice errors due to low cognitive reflection but are tools to overcome self control problems buying small scale insurance is associated with having narrow mental budgets suggesting that people buy such insurance to insure themselves against the consequences of their own self control strategy

mental budgeting and consumer decisions consumers often set budgets for categories of expenses e g entertainment and track expenses against their budget because budgets cannot perfectly anticipate consumption opportunities people may earmark too much or too little money for a particular category this leads them to overconsume or underconsume goods in that category the results of three studies suggest that consumers do indeed set budgets and that budgeting may lead to underconsumption to show that consumers track expenses the studies demonstrate that budgeting effects are larger for purchases that are highly typical of their category such purchases reduce the amount people spend in a category and block the purchase of other typical items the studies control for satiation and income effects thus budgeting adds predictive power to standard economic consumer theory

forecasting day ahead electricity spot prices the impact of the exaa to other european electricity markets abstract in our paper we analyze the relationship between the day ahead electricity price of the energy exchange austria exaa and other day ahead electricity prices in europe we focus on markets which settle their prices after the exaa which enables traders to include the exaa price into their calculations for each market we employ econometric models to incorporate the exaa price and compare them with their counterparts without the price of the austrian exchange by employing a forecasting study we find that electricity price models can be improved when exaa prices are considered

an economic capital model integrating credit and interest rate risk in the banking book banks often measure credit and interest rate risk in the banking book separately and then add the risk measures to determine economic capital this approach misses complex interactions between the two risk types we develop a framework where these risks are analysed jointly since banking book positions are generally not marked to market our model is based on book value accounting our simulations show that interactions matter and that ignoring them leads to risk overstatement the magnitude of the errors depends on the structure of the balance sheet and on the repricing characteristics of assets and liabilities

efficient modeling and forecasting of electricity spot prices abstract the increasing importance of renewable energy especially solar and wind power has led to new forces in the formation of electricity prices hence this paper introduces an econometric model for the hourly time series of electricity prices of the european power exchange epex which incorporates specific features like renewable energy the model consists of several sophisticated and established approaches and can be regarded as a periodic var tarch with wind power solar power and load as influences on the time series it is able to map the distinct and well known features of electricity prices in germany an efficient iteratively reweighted lasso approach is used for the estimation moreover it is shown that several existing models are outperformed by the procedure developed in this paper

contraction with unpacking when unpacking leads to lower calorie budgets consumers set a lower consumption budget when they set individual calorie budgets for constituent categories e g breakfast lunch dinner and snacks categorical approach versus when they set a total budget overall approach this contraction effect of unpacking a judgment is driven by motivated reasoning consumers are motivated to reduce calorie consumption and this motive directs their cognitive elaboration for the budget decision to be on what to cut and how much to cut furthermore the categorical vs overall approach brings to mind more thoughts that are consistent with the motive to reduce consumption which then leads to a lower calorie budget consistent with this explanation the level of elaboration on reducing calorie intake especially on occasions where overconsumption is less salient mediates the contraction effect in addition the contraction effect is attenuated when the motive to reduce consumption is deactivated finally while the contraction effect occurs when consumers have a motive to reduce consumption the classic expansion effect of unpacking occurs when consumers are prompted to think about what to consume or are motivated to increase consumption the results for calorie budgeting are shown to have downstream consequences on actual food consumption

the behavioral life cycle hypothesis self control mental accounting and framing are incorporated in a behavioral enrichment of the life cycle theory of saving called the behavioral life cycle blc hypothesis the key assumption of the blc theory is that households treat components of their wealth as nonfungible even in the absence of credit rationing specifically wealth is assumed to be divided into three mental accounts current income current assets and future income the temptation to spend is assumed to be greatest for current income and least for future income considerable empirical support for the blc theory is presented primarily drawn from published econometric studies

self control for the righteous toward a theory of precommitment to indulgence prior research has examined consumers use of self control to avoid hedonic myopic temptations such as overspending and smoking in this research we investigate the opposite form of self control whereby consumers force themselves to indulge and avoid default forms of spending on utilitarian necessities and or savings in particular consumers who have difficulty choosing items that are perceived as indulgences or luxuries e g a cruise over necessities e g saving for college education and cash in everyday decisions may use precommitments to indulgence especially when the psychological cost of such commitments is less concrete these propositions were tested in a series of studies involving real and hypothetical choices as well as process measures the results indicate that a substantial segment of consumers choose hedonic luxury rewards over cash of equal or greater value consumers typically explain such choices based on the need to precommit to indulgence to make sure that the award does no

recent advances in electricity price forecasting a review of probabilistic forecasting abstract since the inception of competitive power markets two decades ago electricity price forecasting epf has gradually become a fundamental process for energy companies decision making mechanisms over the years the bulk of research has concerned point predictions however the recent introduction of smart grids and renewable integration requirements has had the effect of increasing the uncertainty of future supply demand and prices academics and practitioners alike have come to understand that probabilistic electricity price and load forecasting is now more important for energy systems planning and operations than ever before with this paper we offer a tutorial review of probabilistic epf and present much needed guidelines for the rigorous use of methods measures and tests in line with the paradigm of maximizing sharpness subject to reliability the paper can be treated as an update and a further extension of the otherwise comprehensive epf review of weron 1 or as a standalone treatment of a fascinating and underdeveloped topic that has a much broader reach than epf itself

mental accounting access motives and overinsurance people exercising mental accounting have an additional motive for buying insurance they perceive a risk of having insu cient funds available to self insure in this way insurance protects the consumption value of the insured asset beyond the expenditure to acquire replace it this complements previous approaches based on probability weighting and loss aversion to explain the high pro tability of warranties and an aversion toward deductibles it helps to account for why the value of a warranty is found to be positively related to the value of the product and why there is seemingly contradictory empirical evidence on how household income a ects demand for warranties the adapted model rationalizes a strong aversion to deductibles and explains the observed sensitivity of this aversion to the insurance context finally it predicts a strong impact of how an insurer pays out bene ts on the value and cost of insurance this can explain both the evidence on strong deductible aversion for ood insurance and the lack of such evidence for long term care insurance jel classi cation d11 d14 d81 g22

the impact of renewable energies on eex day ahead electricity prices in this paper we analyze the impact of renewable energies wind and photovoltaic on the formation of day ahead electricity prices at eex we give an overview of the policy decisions concerning the promotion of renewable energy sources in germany and discuss their consequences on day ahead prices an analysis of electricity spot prices reveals that the introduction of renewable energies enhances extreme price changes in the frame of a dynamic fundamental model we show that there has been a continuous electricity price adaption process to market fundamentals furthermore the fundamental drivers of prices differ among hours with different load profiles our results imply that renewable energies decrease market spot prices and have implications on the traditional fuel mix for electricity production however the prices for the final consumers increased overall because they must pay in addition the feed in tariffs for the promotion of renewable energy

determinants of renewable energy development in the eu countries a 20 year perspective abstract the objective of the paper is to identify factors which determine energy policy in the eu countries in the middle of 1990s this objective is achieved in three stages first the changes in the distribution of res in 26 eu countries in the period between 1995 and 2014 are investigated the analysis demonstrates that over the last 20 years the eu countries diversify the res they use which results in substantial changes in their distribution second the distribution of energy sources in 1995 is described as it is assumed that the distribution might be a crucial factor influencing energy policy in each country third several other factors related to energy security environmental concerns economy and politics are considered as potential determinants of renewable energy development two statistical methods of variable selection namely the best subset regression and the lars method reveal that the present in 2014 share of res in the energy mix significantly depends on the condition of the eu countries in the middle of 1990s the distribution of energy sources in 1995 is the crucial determinant of renewable energy development countries without their own fossil fuel sources are the ones which develop renewable energy to the greatest extent other important factors boosting re development include gdp per capita concentration of energy supply swi and the costs of consumption of energy obtained from fossil fuels in relation to gdp

the red and the black mental accounting of savings and debt in the standard economic account of consumer behavior the cost of a purchase takes the form of a reduction in future utility when expenditures that otherwise could have been made are forgone the reality of consumer hedonics is different when people make purchases they often experience an immediate pain of paying which can undermine the pleasure derived from consumption the ticking of the taxi meter for example reduces one s pleasure from the ride we propose a double entry mental accounting theory that describes the nature of these reciprocal interactions between the pleasure of consumption and the pain of paying and draws out their implications for consumer behavior and hedonics a central assumption of the model which we call prospective accounting is that consumption that has already been paid for can be enjoyed as if it were free and that the pain associated with payments made prior to consumption but not after is buffered by thoughts of the benefits that the payments will finance another important concept is coupling which refers to the degree to which consumption calls to mind thoughts of payment and vice versa some financing methods such as credit cards tend to weaken coupling whereas others such as cash payment produce tight coupling our model makes a variety of predictions that are at variance with economic formulations contrary to the standard prediction that people will finance purchases to minimize the present value of payments our model predicts strong debt aversion that they should prefer to prepay for consumption or to get paid for work after it is performed such pay before sequences confer hedonic benefits because consumption can be enjoyed without thinking about the need to pay for it in the future likewise when paying beforehand the pain of paying is mitigated by thoughts of future consumption benefits contrary to the economic prediction that consumers should prefer to pay at the margin for what they consume our model predicts that consumers will find it less painful to pay for and hence will prefer flat rate pricing schemes such as unlimited internet access at a fixed monthly price even if it involves paying more for the same usage other predictions concern spending patterns with cash charge or credit cards and preferences for the earmarking of purchases we test these predictions in a series of surveys and in a conjoint like analysis that pitted our double entry mental accounting model against a standard discounting formulation and another benchmark that did not incorporate hedonic interactions between consumption and payments our model provides a better fit of the data for 60 of the subjects the discounting formulation provides a better fit for only 29 of the subjects even when allowing for positive and negative discount rates the pain of paying we argue plays an important role in consumer self regulation but is hedonically costly from a hedonic perspective the ideal situation is one in which payments are tightly coupled to consumption so that paying evokes thoughts about the benefits being financed but consumption is decoupled from payments so that consumption does not evoke thoughts about payment from an efficiency perspective however it is important for consumers to be aware of what they are paying for consumption this creates a tension between hedonic efficiency and what we call decision efficiency various institutional arrangements such as financing of public parks through taxes or usage fees play into this tradeoff a producer developing a pricing structure for their product or service should be aware of these two conflicting objectives and should try to devise a structure that reconciles them

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

effects of payment mechanism on spending behavior the role of rehearsal and immediacy of payments past expenses have been shown to influence future spending behavior by depleting available budgets however a prerequisite for this relationship is the accurate recall of past payments and the experiencing of the full aversive impact associated with them this article shows that the use of different payment mechanisms influences both these factors and hence moderates the effects of past payments on future spending specifically past payments strongly reduce purchase intention when the payment mechanism requires the consumer to write down the amount paid rehearsal and when the consumer s wealth is depleted immediately rather than with a delay immediacy two experiments show support for the proposed theoretical framework

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

on the importance of the long term seasonal component in day ahead electricity price forecasting abstract in day ahead electricity price forecasting epf the daily and weekly seasonalities are always taken into account but the long term seasonal component ltsc is believed to add unnecessary complexity to the already parameter rich models and is generally ignored conducting an extensive empirical study involving state of the art time series models we show that i decomposing a series of electricity prices into a ltsc and a stochastic component ii modeling them independently and iii combining their forecasts can bring contrary to a common belief an accuracy gain compared to an approach in which a given time series model is calibrated to the prices themselves

yes but this other one looks better works better how do consumers respond to trade offs between sustainability and other valued attributes consumers are increasingly facing product evaluation and choice situations that include information about product sustainability i e information about a product s relative environmental and social impact in many cases consumers have to make decisions that involve a trade off between product sustainability and other valued product attributes similarly product and marketing managers need to make decisions that reflect how consumers will respond to different trade off scenarios in the current research we study consumer responses across two different possible trade off scenarios one in which consumers face a trade off between product sustainability and hedonic value and another in which they must trade off between product sustainability and utilitarian value our results suggest that overall consumers are more likely to trade off hedonic value e g esthetics for sustainability than to trade off utilitarian value e g functional performance for sustainability in studies 1a and 1b we presented participants with a product choice task and also measured their anticipatory emotions as they contemplated their options the results suggest that given a trade off consumers are more likely to choose a sustainable product when they have to trade off hedonic value than when they have to trade off utilitarian value further these studies provide some insight into the emotions underlying this effect in study 2 we use a different consumer response measure relative purchase likelihood and investigate the effect of trade off type across categories that vary in the degree to which hedonic and utilitarian attributes are perceived to be important referred to as product type our results suggest that the effect of trade off type still holds yet is moderated by product type such that consumers greater willingness to trade off hedonic value vs utilitarian value for sustainability is attenuated as the relative importance of hedonic vs utilitarian attributes increases in addition to building on our theoretical understanding of decision making given trade offs with moral attributes this research is also intended to support managers as they define and choose among various strategic product development and marketing promotion options

the benefits of emergency reserves greater preference and persistence for goals that have slack with a cost abstractmarketers of programs that are designed to help consumers reach goals face dual challenges of making the program attractive enough to encourage consumer signup while still motivating consumers to reach desirable goals and thus stay satisfied with the program the authors offer a possible solution to this challenge the emergency reserve or slack with a cost they demonstrate how an explicitly defined emergency reserve not only is preferred over other options for goal related programs but can also lead to increased persistence study 1 demonstrates that consumers prefer programs with emergency reserves to programs that do not have them and study 2 further clarifies that consumers preference for an emergency reserve depends on the presence of a superordinate goal study 3 reveals that consumers prefer goals with emergency reserves because they perceive them to have both higher attainability and value than other goals study 4 demonstrates that reserves can lead to increased goal persistence in a

justification effects on consumer choice of hedonic and utilitarian goods abstract people want to have fun and they are more likely to have fun if the situation allows them to justify it this research studies how people s need for justifying hedonic consumption drives two choice patterns that are observed in typical purchase contexts first relative preferences between hedonic and utilitarian alternatives can reverse depending on how the immediate purchase situation presents itself a hedonic alternative tends to be rated more highly than a comparable utilitarian alternative when each is presented singly but the utilitarian alternative tends to be chosen over the hedonic alternative when the two are presented jointly second people have preferences for expending different combinations of time effort and money for acquiring hedonic versus utilitarian items they are willing to pay more in time for hedonic goods and more in money for utilitarian goods the author explores the topic through a combination of four experiments and field studies

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

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

a new approach to optimal capital allocation for rorac maximization in banks abstract we introduce a new model for optimal internal capital allocation which would allow banks to maximize their return on risk adjusted capital rorac under regulatory and capital constraints we extend the single period model of buch et al 2011 to a multi period model and improve its forecasting accuracy by including the debt effect and bayesian learning innovations the empirical application shows that our model significantly improves the rorac of a sample of banks listed in the s p 500 index

a model of mental accounting and reference price adaptation consumers possess a mental account that stores the worth of items purchased and yet to be consumed reference prices act as the book values of these items movements in the account the comparison between the reference price and the price paid at entry and the comparison between the benefit of consumption and the reference price at exit yield hedonic benefits the reference price is determined by a psychological process of adaptation to the price evoked by the trade the model is integrative in that it explains a wide array of observed anomalies such as sunk cost effects payment depreciation reluctance to trade preference for prepayment and the flat rate bias the model also generates new testable implications this paper was accepted by james smith decision analysis

risk capital allocation for rorac optimization abstract this paper considers the financial optimization problem of a firm with several sub businesses striving for its optimal rorac an insightful example shows that the implementation of classical gradient capital allocation can be suboptimal if division managers are allowed to venture into all business whose marginal rorac exceeds the firm s rorac the marginal rorac requirements are refined by adding a risk correction term that takes into account the interdependencies of the risks of different lines of business it is shown that under certain stationarity conditions this approach can guarantee that the optimal rorac will eventually be achieved

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

forecasting electricity spot prices using lasso on capturing the autoregressive intraday structure in this paper we present a regression based model for day ahead electricity spot prices we estimate the considered linear regression model by the lasso estimation method the lasso approach allows for many possible parameters in the model but also shrinks and sparsifies the parameters automatically to avoid overfitting thus it is able to capture the autoregressive intraday dependency structure of the electricity price well we discuss in detail the estimation results which provide insights to the intraday behavior of electricity prices we perform an out of sample forecasting study for several european electricity markets the results illustrate well that the efficient lasso based estimation technique can exhibit advantages from two popular model approaches

the influence of price discount versus bonus pack on the preference for virtue and vice foods abstract the authors find that consumers prefer a bonus pack to a price discount for virtue foods but they prefer a price discount to a bonus pack for vice foods prior research has shown that all else being equal consumers prefer bonus packs to price discounts the authors propose that this preference does not hold for vice food because consumers cannot generate good justifications for buying such food when a bonus pack is offered because this would mean consuming more of the vice however a price discount on a vice food can be justified because it acts as a guilt mitigating mechanism for virtue foods the absence of both anticipated postconsumption guilt and the resultant need to justify leads consumers to prefer a bonus pack to a price discount the authors demonstrate the proposed effect and test its underlying process across five experiments

day ahead electricity price forecasting using the wavelet transform and arima models this paper proposes a novel technique to forecast day ahead electricity prices based on the wavelet transform and arima models the historical and usually ill behaved price series is decomposed using the wavelet transform in a set of better behaved constitutive series then the future values of these constitutive series are forecast using properly fitted arima models in turn the arima forecasts allow through the inverse wavelet transform reconstructing the future behavior of the price series and therefore to forecast prices results from the electricity market of mainland spain in year 2002 are reported