pricing and lot sizing decisions for perishable goods when demand depends on selling price reference price product freshness and displayed stocks abstract price is an important factor affecting demand rate based on economic and marketing theory in addition today s health conscious consumers prefer a product further from its expiration date because it is fresher and can be stored longer furthermore a large display of goods in a supermarket induces customers to buy more due to its visibility variety and seasonality as a result we develop a joint pricing and lot sizing model for retailers selling perishable products in which the demand depends on not only the selling price and reference price but also the product freshness linked to expiration date and displayed stock level we then formulate the problem as a deterministic model in which the retailer determines the optimal selling prices and ending inventory levels to maximize the discounted total profit furthermore we discuss the retailer s optimal decisions under two scenarios of demand behavior loss neutrality and loss aversion our theoretical analysis shows that the optimal pricing and ending inventory level strategies are both monotonic in time and the equilibrium of the system is unique for these two scenarios of demand behavior finally a set of structural properties and sensitivity analysis is also developed to characterize the impacts of model parameters on the optimal decisions

optimal retailer investments in green operations and preservation technology for deteriorating items abstract this paper examines the impact of dynamic retailer investments in green operations while considering the reference price effect a replenishment problem based on joint pricing dynamic investment in green operations preservation technology and optimal replenishment times for deteriorating items is considered as a way to maximize retailer profit in this problem the demand rate depends on the sales and reference prices as well as green concern level optimal control theory is employed to obtain a dynamic investment rate and a simulated annealing algorithm is used to find the solution of the nonlinear constraint optimization problem which determines the price preservation technology investment and replenishment cycle time in addition computational simulations and sensitivity analyses are carried out to offer managerial insights the findings suggest that continuous investment in green operations and preservation technology can significantly improve the retailer s financial performance the consumer reference price is an important influence on the retailer s decision to invest in green operations furthermore results show that the higher price sensitivity of the market always discourages the retailer from investing in green operations the retailer needs to invest more in green operations for products with relatively high unit value

tests of fanning out of indifference curves results from animal and human experiments in an earlier paper raymond c battalio john h kagel and don n mac donald 1985 we reported allais type violations of the independence axiom of expected utility theory with rats choosing over positively valued payoffs food rewards this note extends this research examining animals choices over losses testing for 1 standard allais type common ratio effect violations of expected utility theory and 2 fanning out of indifference curves for random prospects tests of mark j machina s 1982 1987 hypothesis ii hereafter h2 over previously unexplored areas of the unit probability triangle results from a parallel series of experiments using human subjects choosing over real losses are also reported for both rats and people we find standard allais type violations of expected utility theory and a systematic failure of the fanning out hypothesis in the southeast corner of the unit probability triangle in the case of losses thus the fanning out hypothesis machina 1982 1987 cannot provide a satisfactory explanation for behavioral deviations from expected utility theory

dynamic stochastic inventory management with reference price effects we analyze the joint inventory and pricing decisions of a firm when demand depends on not only the current selling price but also a memory based reference price and customers are loss averse the presence of reference price effect leads to a nonconcave one period expected revenue in price and reference price we introduce a transformation technique that allows us to prove under some mild assumptions the optimality of a reference price dependent base stock list price policy which is characterized by a base stock level and a target reference price in addition we show that the target reference price is increasing in the reference price but except in the loss neutral case the base stock level is not monotone in the reference price we also show that in the steady state of the model with the reference price effect the optimal price is lower while the optimal base stock level is higher than their counterparts in the model without the reference price effect

evolutionary origins of the endowment effect evidence from hunter gatherers the endowment effect the tendency to value possessions more than non possessions is a well known departure from rational choice and has been replicated in numerous settings we investigate the universality of the endowment effect its evolutionary signi cance and its dependence on environmental factors we experimentally test for the endowment effect in an isolated and evolutionarily relevant population of hunter gatherers the hadza bushmen of northern tanzania we nd that hadza living in isolated regions do not display the endowment effect while hadza living in a geographic region with increased exposure to modern society and markets do display the endowment effect jel c93 d12 o15 this paper uses a natural experiment in a hunter gatherer population to provide evidence on three questions the universality of a behavioral bias the endowment effect its dependence on cultural factors and its evolutionary signi cance systematic deviations from rational behavior have been extensively documented along with their importance for market outcomes yet evidence on the three questions above is sparse especially for biases in economic decisions first most experiments are conducted in industrialized societies and in particular on college campuses so biases could be the result of shared experiences as opposed to innate features of human behavior second cross cultural experiments typically compare very different groups making it hard to attribute differences in behavior to a speci c cultural factor due to omitted variable bias roth et al 1991 henrich et al 2001 2006 third while many contributions in economics have proposed evolutionary

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

anchoring effects evidence from art auctions in order to separate anchoring where an irrelevant message has an effect on the outcome from rational learning where past prices are not irrelevant because they may be used to estimate unobservable quality we use the following strategy we first develop a hedonic prediction of price for both the current sale e g the 2006 sale and the previous sale these hedonic predic tions are based on observable characteristics of each painting and an index of overall prices we then regress actual sale price on our hedonic prediction on the difference between the actual price in the previous sale and our hedonic prediction this expression tests for anchoring and on the difference between the actual price in the previous sale and our hedonic prediction of price in the previous sale this expression controls for unobservable characteristics the test for anchor ing is the extent to which the actual price in the previous sale affects the current sale price we can identify anchoring from other effects because the demand for art which is captured by the average overall price index changes over time whereas the unobservable component of qual ity is assumed to remain constant between auctions this allows us to control for unobserved quality characteristics as long as something drastic has not happened between sales such as a painting has been deemed a fake which is a very rare occurrence the assumption of constant quality is a realistic one

convergence in sub saharan africa a nonstationary panel data approach given the development of time series econometrics and nonstationary data analysis st aubyn empirical economics 24 23 44 1999 demonstrates a new paradigm for testing income convergence or better defined income stability namely testing the stationarity of pair wise income differentials in this paper a panel data set of sub saharan african countries is constructed and panel cointegration and unit root tests are used to investigate the convergence properties of incomes and standards of living within africa overall little evidence is found to substantiate claims of convergence across africa although in some cases smaller convergence clubs within africa may be found in addition the use of nonstationary panel data techniques is proposed for the testing and establishing of coherent convergence clubs

dual role of price and myopia in a marketing channel abstract in this paper we study a dynamic two player channel where the manufacturer controls the wholesale price and the investment in quality and the retailer chooses the retail price we consider that the retail price affects both the demand and the perceived quality of the brand and that its variations contribute to the building of an internal reference price one of the model s distinctive features is that it accounts for the two meanings of price i e its classical objective measure of the cost of acquiring a particular quantity of the product and its subjective roles as an assessment of the quality of the product and an evaluation of gains or losses deal vs sacrifice resulting from buying a cheap or an expensive product this dual computation is done with respect to the internal reference price our objective is to investigate the impact of retailer s myopia on the pricing strategies and payoffs of channel members in this context a myopic retailer is an agent that disregards the effects of its pricing strategy on the evolution of the perceived brand quality and the reference price

consumer price and promotion expectations an experimental study the authors report results from a controlled experiment designed to investigate the impact of a brand s price promotion frequency and the depth of promotional price discounts on the price consumers

the timing of sales this paper presents a model of intertemporal price discrimination a fixed number of sellers produce a homogeneous good consumers with different preferences enter the market in each period and leave when they make a purchase the sellers typically vary their prices over time charging a high price in most periods but occasionally cutting the price to sell to a large group of customers with a low reservation price in some equilibria all stores lower their price at the same time and to the same level

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

economic targets and loss aversion in international environmental cooperation economic targets in environmental coopeartion in the standard emission problem each country s ruling party decides on an optimal level of emissions by analyzing the cost and benefit to the country however such policy decisions are often influenced by political parties incentives to be elected voters tend to give higher priority to economic issues than they do to environmental ones as a result political parties have additional incentives to reach a critical economic benefit level at a cost of higher emission level in order to satisfy voters expectations in economic issues therefore this study explores the implications of political parties being averse to insufficient economic performance relative to a critical economic target level on sustaining an international environmental agreement on emission levels in doing so we allow countries to have asymmetric concerns about economic targets as well as asymmetric technology levels we find that stronger concerns about economic targets deter the most cooperative emission levels countries could jointly sustain furthermore technological asymmetry could either deepen or offset this impact these results suggest that efforts on achieving substantial international environmental agreements should be supported at the citizen level to eliminate the adverse effects

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

dynamic pricing with loss averse consumers and peak end anchoring we study the dynamic pricing implications of a new behaviorally motivated reference price mechanism based on the peak end memory mode this model suggests that consumers anchor on a reference price that is a weighted average of the lowest and most recent prices loss averse consumers are more sensitive to perceived losses than gains relative to this reference price we find that a range of constant pricing policies is optimal for the corresponding dynamic pricing problem this range is wider the more consumers anchor on lowest prices and it persists when buyers are loss neutral in contrast with previous literature in a transient regime the optimal pricing policy is monotone and converges to a steady state price which is lower the more extreme and salient the low price anchor is our results suggest that behavioral regularities such as peak end anchoring and loss aversion limit the benefits of varying prices and caution that the adverse effects of deep discounts on the firm s optimal prices and profits might be more enduring than previous models predict

commodity choice behavior with pigeons as subjects starting from an initial baseline budget line income compensated price changes always resulted in substitution effects consistent with the slutsky hicks theory this behavior cannot be explained by a simple random behavior model similar changes in relative prices that did not originate from the initial baseline budget line resulted in undersubstitution effects the composition of consumption changed in the expected direction but the magnitude of change was not large enough to be consistent with the initial commodity bundle chosen these undersubstitution effects are not explainable by shifting preference patterns or anchoring effects found in inconsistent choice sequences with human subjects

stabilizing inflation in the open economy optimal monetary policy in the open economy continues to be of interest to the profession as in benavie and froyen 1 and price level stabilization has been investigated by bradley and jansen 4 marquis and cunningham 13 and fischer 6 among many others price level stabilization has also been investigated in the monetary policy literature by for example black 2 or black and gavin 3 the academic literature has included analysis of price level stabilization in a variety of macroeconomic frameworks ranging from overlapping generations models to equilibrium business cycle models and keynesian contracting models what has been lacking however is a rigorous analysis of price level stabilization in the open economy this apparent omission is interesting because the most famous historical application of price level targeting occurred in the 1930s in sweden a small open economy in this paper we carefully examine the effectiveness of price level or inflation stabilization in the small open economy 2 employing an equilibrium business cycle model with differentially informed agents we find that when shocks to the economy exhibit some persistence inflation stabilization has favorable output stabilization properties relative to alternative monetary policies further these beneficial aspects of inflation stabilization exist whether or not agents contemporaneously observe the money stock the only instance in which inflation stabilization policy is not preferred is when all shocks to the economy are strictly temporary shocks and when uninformed agents can not observe the money stock contemporaneously finally in all instances we find that price level stabilization is preferred from a macroeconomic stabilization perspective to exchange

practice prize report an assortmentwide decision support system for dynamic pricing and promotion planning in diy retailing the main objective of this report is to describe a decision support system for dynamic retail pricing and promotion planning our weekly demand model incorporates price reference price effects seasonality article availability information features and discounts building on previous research we quantify demand interdependencies and integrate the resulting profit lifting effects into the optimal pricing model the methodology was developed and implemented at baumax an austrian do it yourself retailer along with the practical requirements an objective function was employed that can be used as a vehicle for implementing a retailer s strategy eight pricing rounds with thousands of different stock keeping units have each served as a testing ground for our approach based on various benchmarking methods a positive impact on profit was reported the currently implemented marketing decision support system increased gross profit on average by 8 1 and sales by 2 1

technical note a price vector model of demand for consumer durables preliminary developments although considerable research has been conducted on optimal pricing policies for manufacturers relatively little work has been done on how price enters the consumer choice process in this paper a model is developed for durables purchasing which integrates both economic and behavioral research by specifying a vector of five price concepts which affect purchasing behavior of particular interest are variables relating to future price expectations due to data limitations a revised model is estimated and the results provide preliminary support for the general model

the genetics of investment biases abstract for a long list of investment biases including lack of diversification excessive trading and the disposition effect we find that genetic differences explain up to 45 of the remaining variation across individual investors after controlling for observable individual characteristics the evidence is consistent with a view that investment biases are manifestations of innate and evolutionary ancient features of human behavior we find that work experience with finance reduces genetic predispositions to investment biases finally we find that even genetically identical investors who grew up in the same family environment often differ substantially in their investment behaviors due to individual specific experiences or events

sticks or carrots optimal ceo compensation when managers are loss averse this paper analyzes optimal executive compensation contracts when managers are loss averse we calibrate a stylized principal agent model to the observed contracts of 595 ceos and show that this model can explain observed option holdings and high base salaries remarkably well for a range of parameterizations we also derive and calibrate the general shape of the optimal contract that is increasing and convex for medium and high outcomes and that drops discontinuously to the lowest possible payout for low outcomes finally we identify the critical features of the loss aversion model that render optimal contracts convex

the bright side of loss aversion in dynamic and competitive markets a well established phenomenon of consumer buying behavior is that consumers evaluate prices relative to a reference point and exhibit loss aversion i e their propensity to buy is more negatively affected by prices above the reference point than it is positively affected by prices below the reference point the objective of this paper is to analytically examine how the competitive strategy and profitability of firms are affected by the presence of consumer loss aversion in the price dimension although we assume that consumer loss aversion increases consumer propensity to search for lower prices we find that it does not necessarily lead to lower prices or profits when firms compete over multiple periods and when the consumer reference price in subsequent periods is affected by current prices specifically consumer loss aversion could lead to higher prices and profits when consumer valuation is sufficiently high relative to search costs and the proportion of consumers with positive search costs is in an intermediate range we also show that when forward looking firms incorporate the negative effect of price promotions on future profits the equilibrium range of price promotions may actually increase

melioration a theory of distributed choice in this paper we develop a theory of individual choice called melioration which implies that choices distributed over a period of time may be reliably and predictably suboptimal in terms of the person s own preferences consider some typical examples of distributed choices the expenditure rate on various non durables frequency of athletic exercise rate of work in free lance type occupations allocation of leisure time rate of savings or dissavings expenditures on lottery tickets and other forms of gambling when people express dissatisfaction about their choices their discontent seems clustered around these sorts of distributed choices for example complaints that one is working too hard or not hard enough exercising too little or too much wasting time overeating overspending and so on are commonplace the next two sections of the paper spell out the basic theory we are proposing the following section then applies the theory to pathological consumption patterns and shows that one should find a general underinvestment in those activities that exhibit increasing average returns to rate of consumption and an overinvestment in activities that have an addiction like interaction between value and rate the final section compares the theory with other approaches to suboptimal choice

external debt labour productivity growth and convergence evidence from sub saharan africa sub saharan africa ssa has long suffered from lagging productivity and excessive levels of indebtedness using both parametric and non parametric techniques this paper examines the impact of external debt on labour productivity growth and convergence across ssa economies over the period 1970 2010 the results indicate the presence of debt overhang effects regardless of model and sample specification debt reduction through the heavily indebted poor countries and multilateral debt relief initiatives enhanced growth but was not successful in offsetting the debt overhang effects moreover excessive levels of external debt were responsible for divergence in output per worker over the early 1990s although this trend was reversed over the 2000s reduction in debt through the debt relief initiatives seems to have been insufficient in helping heavily indebted countries in ssa catch up with the labour productivity levels of the best performing economies in the region

the value of time ten studies are used to document that time is valued in accordance with a double kinked value function there is a zone of indifference for small time gains losses increasing marginal utility disutility for moderate time gains losses and diminishing marginal utility disutility for large time gains losses moderate amounts of time exhibit increasing marginal utility disutility because larger blocks of time provide a more diverse set of usage opportunities it is only when it is difficult to imagine how more less time would be beneficial detrimental that there is diminishing marginal utility disutility for time thus time valuation shows increasing marginal utility when there is a time deficit but diminishing marginal utility when there is a time surplus these findings have implications for how other resources might be valued

in search of homo economicus behavioral experiments in 15 small scale societies we can summarize our results as follows first the canonical model is not supported in any society studied second there is considerably more behavioral variability across groups than had been found in previous cross cultural research and the canonical model fails in a wider variety of ways than in previous experiments third group level differences in economic organization and the degree of market integration explain a substantial portion of the behavioral variation across societies the higher the degree of market integration and the higher the payoffs to cooperation the greater the level of cooperation in experimental games fourth individual level economic and demographic variables do not explain behavior either within or across groups fifth behavior in the experiments is generally consistent with economic patterns of everyday life in these societies

the equity estimator for marketing research we introduce a new biased estimator called the equity estimator to estimate parameters of linear models in the presence of multicollinearity we then employ a comprehensive simulation methodology to evaluate ols the equity estimator and a particular form of the ridge estimator which has received some attention in the statistical literature we show that both equity and ridge perform significantly better than ols on a variety of performance measures over most of the parameter space the equity estimator does much better than the ridge estimator on the squared error criterion on other criteria the equity estimator performs marginally better than ridge in particular equity does well when the degree of multicollinearity among the explanatory variables is high and or the r2 of ols for the sample is less than 0 7 conditions frequently encountered in marketing research we discuss how the results of this study can be used by marketing researchers in choosing an appropriate estimator for their particular application

reference effects of price and promotion on brand choice behavior when consumers are exposed to pricing and promotional activity by frequently purchased packaged goods they may develop expectations that are used as points of reference in evaluating future activi

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

anchoring on credit spreads this paper documents that the path of credit spreads since a firm s last loan influences the level at which it can currently borrow if spreads have moved in the firm s favor i e declined it is charged a higher interest rate than is justified by current fundamentals whereas if spreads have moved to the firm s detriment it is charged a lower rate we evaluate several possible explanations for this finding and conclude that anchoring to past deal terms is most plausible

monetary policy and the information content of prices rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity as in the analyses of sargent and wallace however if agents are differentially informed and have access to a common price then prospective monetary policy actions future feedback to imperfectly known current circumstances can alter real activity by changing the information content of prices

pricing and promotions in asymmetric duopolies this paper develops a modeling framework for making promotions decisions in contrast to some of the prior research the framework explicitly models promotions its central feature is the view of promotions competition as a multistage game in which regular prices are chosen first followed by the choice of promotion depths and frequencies it is used to illustrate the nature of competition between a national brand and private label in equilibrium the national brand promotes to ensure that the private label does not try to attract consumers away from the national brand moreover the private label does not promote this equilibrium is also contrasted with varian s framework used by other researchers in which mixed strategy equilibrium prices are interpreted as promotions

monetary instruments and policy rules in a rational expectations environment abstract this paper explores the implications of rational expectations and the aggregate supply theory advanced by lucas 1973 and barro 1976 for analysis of optimal monetary policy under uncertainty along the lines of poole 1970 returning to a topic initially treated by sargent and wallace 1975 not surprisingly these two classical concepts alter both the menu of feasible policy choice and the desirability of certain policy actions in our setup unlike that of sargent and wallace 1975 the systematic component of monetary policy is a relevant determinant of the magnitude of business fluctuations that arise from shocks to the system central bank behavior both the selection of monetary instruments and the framing of overall policy response to economic conditions can work to diminish or increase the magnitude of business fluctuations however the activist policies stressed by the present discussion bear little if any relationship to the policy options rationalized by the conventional analysis of monetary policy under uncertainty in particular in contrast to poole s analysis money supply responses to the nominal interest rate are not important determinants of real economic activity rather the central bank should focus on policies that make movements in the general price level readily identifiable by economic agents

garp for kids on the development of rational choice behavior in this paper we examine the extent to which consumption choices by 7 and 11 year old children and college undergraduates satisfy the axioms of revealed preference we find that choices by even the 7 year olds are considerably more likely to obey revealed preference axioms than would be true if they were choosing randomly 11 year olds do better still while college students do no better than 11 year old children we also find that mathematical ability is not correlated with choosing rationally we argue that this evidence suggests that the ability to choose rationally is not innate but that it does develop quickly

anchoring on historical high prices and seasoned equity offerings we document that firms financing decisions are affected by historical high prices the ratio of the monthly high price to the 12 month historical high price positively affects the probability of a seasoned equity offering seo furthermore the postannouncement market reaction is muted and the offering discount is smaller if the preannouncement stock price is high relative to its historical high price the results suggest that historical high price reference points may help managers rationally time seos to take advantage of market reception and minimize issuance costs

interest rate changes and borrower search behavior abstract borrower search behavior regarding an outside lender is correlated with interest rate changes the results of a survey among german households reveal that surprisingly few mortgage borrowers switch to an outside lender when refinancing in a period of declining interest rates although non switching borrowers face significantly higher interest rates a laboratory experiment which adds the case of rising interest rates reveals that borrowers efforts to screen offers by outside lenders are significantly higher when interest rates rise than when they fall this behavior cannot be reconciled with alternative explanations overall several billion p a are transferred to lenders

a review essay about foundations of neuroeconomic analysis by paul glimcher neuroeconomics aims to discover mechanisms of economic decision and express them mathematically to predict observed choice while the contents of neuroeconomic models and evidence are obviously different than in traditional economics some of the goals are identical to explain and predict choice the effects of comparative statics and perhaps make interesting new welfare judgments that are defensible to this end paul glimcher s important book carefully describes how economics psychological and neural levels of explanation can be linked a structure which has been successful in visual neuroscience as glimcher shows the neural evidence is quite strong for a process of learning valuations through prediction error and a simple model of neural valuation and comparison that corresponds to random utility though subject to normalization which produces menu effects there is also rapidly growing evidence for more complicated constructs in behavioral economics including prospect theory s account of risky choice hyperbolic time discounting level k models of games and social preferences corresponding to internal reward based on what happens to other agents

aggregate information and the role of monetary policy in an open economy a model of a small open economy in which agents trade in local goods markets and an economy wide asset market is developed purchasing power parity is assumed to hold at the aggregate level however because of local deviations from purchasing power parity agents possess differential information using this framework it is shown that when the exchange rate is flexible monetary policy can influence the distribution of real output by altering the information content of the exchange rate however when monetary policy is committed to fixing the exchange rate by a feedback rule the distribution of real output is independent of the particular exchange rate rule chosen the stability of real output under the two regimes is compared and it is demonstrated that regardless of the stability of domestic monetary policy a flexible exchange rate regime is superior in this respect possible qualifications and extensions of these results are also discussed

the impact of heterogeneity in purchase timing and price responsiveness on estimates of sticker shock effects the notion that individuals have an internal reference price against which they compare observed prices is well supported by several psychological theories empirically several papers in the marketing literature employing scanner panel data have modeled the impact of reference prices on brand choice via the sticker shock formulation in which consumers evaluate choice alternatives using differences between shelf prices and reference prices most of the studies reported thus far have not accounted for heterogeneity in price response among consumers and have typically imputed reference prices from the shelf prices of brands that a consumer is supposed to have observed on previous purchases in the category since category marketing activity can differentially affect the purchase timing of households we argue that this measure of reference price may follow certain systematic patterns across consumers and when combined with unaccounted for price response heterogeneity may result in a spurious sticker shock effect specifically we show that estimates of sticker shock are biased upward if households that are price sensitive in the brand choice decision are also more responsive to category promotion activity in their purchase timing decision we discuss some general conditions under which the bias occurs and conduct a simulation experiment to confirm our specific hypotheses our simulation results show that changes in purchase timing are a critical determinant of the bias in the sticker shock effect we also show that unaccounted for price response heterogeneity can in itself result in a biased sticker shock parameter however this requires very large differences in price sensitivities across consumers far greater than what is normally observed we develop a hierarchical bayes version of the nested logit model which models heterogeneity via individual level parameters in a continuous random effects framework we estimate the model on scanner panel data from the yogurt and ketchup categories we find in both categories that the 95 probability interval of the posterior distribution of the mean sticker shock coefficient contains the value zero therefore at least for the data used in this study there is no evidence for the sticker shock effect at the aggregate level in contrast the corresponding coefficient from a standard model which ignores this heterogeneity is highly significant and supports the existence of a possibly spurious sticker shock effect consistent with our explanation of the underlying cause of the bias households that are more price sensitive in the choice decision are also found to be more responsive to category promotion activity in their decision to purchase in the category the results highlight the measurement problems associated with imputing reference prices from past prices since the frequency duration and price level of a retailer s promotional program depend on its size and prevalence accurate estimates of the sticker shock effect are essential for formulating optimal promotion strategies an adequate accounting of consumer heterogeneity is critical to this effort

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

how demanding is the revealed preference approach to demand a well known problem with revealed preference methods is that when data are found to satisfy their restrictions it is hard to know whether this should be viewed as a triumph for economic theory or a warning that these conditions are so undemanding that almost anything goes this paper allows researchers to make this distinction our approach uses an axiomatic characterization of a measure of predictive success due to selten 1991 we illustrate the idea using a panel dataset the results show that this approach can lead us to radically reassess our view of the empirical performance of economic theory

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

how basic are behavioral biases evidence from capuchin monkey trading behavior behavioral economics has demonstrated systematic decision making biases in both lab and field data do these biases extend across contexts cultures or even species we investigate this question by introducing fiat currency and trade to a colony of capuchin monkeys and recovering their preferences over a range of goods and gambles we show that capuchins react rationally to both price and wealth shocks but display several hallmark biases when faced with gambles including reference dependence and loss aversion given our capuchins inexperience with money and trade these results suggest that loss aversion extends beyond humans and may be innate rather than learned

output variability under monetary policy and exchange rate rules this paper examines the controversy concerning the relative desirability of fixed versus flexible exchange rates by examining whether a country can achieve a smaller variance of domestic output around its full employment path operating under an exchange rate rule or under a money supply rule the paper finds that neither policy will always dominate the other however it does find that if shocks in one market of the economy are large relative to shocks to other markets then one type of rule can be shown to dominate the other

small cues change savings choices we present evidence from randomized field experiments that 401 k savings choices are significantly affected by one to two sentence anchoring goal setting or savings threshold cues embedded in emails sent to employees about their 401 k plan even though these cues contain little to no marginal information cues that make high savings rates salient increased 401 k contribution rates by up to 2 9 of income in a pay period and cues that make low savings rates salient decreased 401 k contribution rates by up to 1 4 of income in a pay period cue effects persist between two months and a year after the email

do hedge fund managers misreport returns evidence from the pooled distribution we find a significant discontinuity in the pooled distribution of monthly hedge fund returns the number of small gains far exceeds the number of small losses the dis continuity is present in live and defunct funds and funds of all ages suggesting that it is not caused by database biases the discontinuity is absent in the 3 months culminating in an audit suggesting it is not attributable to skillful loss avoidance the discontinuity disappears when using bimonthly returns indicating a reversal in fund performance following small gains this result suggests that the discontinuity is caused at least in part by temporarily overstated returns

information aggregation and policy the function of monetary policy to alter the informational content of money price signals is examined in a model where traders can observe an economy wide financial signal and a local commodity price under a passive policy money demand disturbances which are not directly observable are shown to be confused with real productivity shocks and thereby preclude prices from fully reflecting all information even when the policy authority has no informational advantage prospective money growth feedback rules can improve the structure of available information applications of the rational expectations hypothesis to monetary theory have focused on the informational aspects of money price signals a key element of the models of lucas 1972 1975 barro 1976 and sargent and wallace 1975 is that agents have limited powers of information acquisition and use prices as imperfect summaries from the rest of the world those works have suggested that monetary policy can affect the informational content of observed price signals and thereby affect real variables in weiss 1980a it was shown systematic money growth feedback rules can contribute to economic efficiency when the money demands of one group are based on factors not directly observed by all in this context monetary policy can alter the information content transmitted from the informed to the uninformed through observation of nominal price signals a limitation of these analyses is the omission of economy wide financial signals clearly stock and bond prices are observed accurately and costlessly empirically there are strong comovements between financial signals and economic activity traditional keynesian theory argues that financial signals exert an important influence on output by affecting the demand for new capital goods understanding the informational role of such signals is crucial to any theory which explains fluctuations as arising from incomplete information the present analysis investigates the structure of available information with its implications for real variables in a model where agents trade on both an economy wide capital market and a local commodity market the model has positive implications for the comovements of money demand disturbances aggregate investment expected and realized returns as well as normative implications for the conduct of policy the structure of exogenous information in the model differs from that of my earlier paper rather than assuming two types of traders informed and uninformed the model considers traders to have symmetric although noisy exogenous private information in this framework the economy wide market both aggregates and transmits individuals information about an aggregate structural variable this modification is both analytically convenient and illustrates how noise in the price system alters the importance of public relative to private sources of information the idea that prices aggregate individual information was first formalized in grossman 1976 in that paper a non monetary model of a speculative market was developed in which the price system conveyed all relevant information so as to yield an efficient allocation however this feature was also shown to break down if prices are influenced by

modelling the effectiveness of climate policies how important is loss aversion by consumers abstracts reliable decarbonisation policies can only be developed with a thorough understanding of how consumers choose between energy technologies current energy models assume optimal consumer decisions which may result in expectations of the effectiveness of climate policies that are far too optimistic prospect theory on the other hand aims to model real life choices based on empirical observations that losses have a relatively larger influence on decisions than gains relative to a reference point here we show for the first time how loss aversion can be included into a global energy model with high spatial resolution using heating technology uptake as a case study we simulate the future heating technology diffusion for 59 world regions covering the globe with and without the consideration of loss aversion we find that ignoring the implications of loss aversion overestimates the market uptake of renewables in individual countries as well as on the global level as a consequence loss aversion results in higher projected co2 emissions by households and the need for much stronger policy instruments for achieving decarbonisation targets in the case of residential heating a carbon tax of 200 tco2 is projected to reduce overall emission levels to a similar extent than a carbon tax of 100 tco2 without the consideration of loss aversion even for similar degrees of decarbonisation accounting for loss aversion implies substantial changes in the underlying technology composition technology choices become subject to a conservative shift towards low carbon technologies which are relatively less efficient but already more established in local markets

efficient algorithms for the dynamic pricing problem with reference price effect we analyze a finite horizon dynamic pricing model in which demand at each period depends on not only the current price but also past prices through reference prices a unique feature but also a significant challenge in this model is the asymmetry in reference price effect which implies that the underlying optimization problem is nonsmooth and no standard optimization methods can be applied we identify a few key structural properties of the problem which enable us to develop strongly polynomial time algorithms to compute the optimal prices for several plausible scenarios we complement our exact algorithms by proposing an approximation heuristic and provide an upper bound on the optimal objective value finally we conduct numerical experiments to study the optimal price path and demonstrate the value of dynamic pricing when demands are seasonal we further compare numerically one of the exact algorithms with the heuristic and offer managerial suggestions this paper was accepted by yinyu ye optimization

technical note dynamic pricing with gain seeking reference price effects we study a dynamic pricing problem of a firm facing reference price effects at an aggregate demand level where demand is more sensitive to gains than losses we find that even the myopic pricing strategy belongs to one type of discontinuous maps which can exhibit complex dynamics over time our numerical examples show that in general the optimal pricing strategies may not admit any simple characterizations and the resulting reference price price dynamics can be very complicated we then show for a special case that a cyclic skimming pricing strategy is optimal and we provide conditions to guarantee the optimality of high low pricing strategies

why don t issuers get upset about leaving money on the table in ipos one of the puzzles regarding initial public offerings ipos is that issuers rarely get upset about leaving substantial amounts of money on the table defined as the number of shares sold times the difference between the first day closing market price and the offer price the average ipo leaves 9 1 million on the table this number is approximately twice as large as the fees paid to investment bankers and represents a substantial indirect cost to the issuing firm we present a prospect theory model that focuses on the covariance of the money left on the table and wealth changes our reasoning also provides an explanation for a second puzzling pattern much more money is left on the table following recent market rises than after market falls this results in an explanation of hot issue markets we also offer a new explanation for why ipos are underpriced copyright 2002 oxford university press

economic targets and loss aversion in international environmental cooperation in the standard emission problem each countryi s ruling party decides on an optimal level of emissions by analyzing the cost and benefit to the country however such policy decisions are often influenced by political partiesi incentives to be elected voters tend to give higher priority to economic issues than they do to environmental ones as a result political parties have additional incentives to reach a critical economic benefit level at a cost of higher emission level in order to satisfy votersi expectations in economic issues therefore this study explores the implications of political parties being averse to insufficient economic performance relative to a critical economic target level on sustaining an international environmental agreement on emission levels in doing so we allow countries to have asymmetric concerns about economic targets as well as asymmetric technology levels we find that stronger concerns about economic targets deter the most cooperative emission levels countries could jointly sustain furthermore technological asymmetry could either deepen or offset this impact these results suggest that efforts on achieving substantial international environmental agreements should be supported at the citizen level to eliminate the adverse effects

income leisure tradeoffs of animal workers results of recent empirical and theoretical research have shown the applicability of consumer demand theory in describing and predicting choices of nonhuman consumers see a covich d rapport and j turner battalio et al kagel et al 1975 1980 commodities used in these studies have been largely limited to different kinds of edibles food grains water and sweet tasting preferred fluids a natural extension of the commodity choice model is to consider leisure as a good this paper presents results of experiments showing that nonhuman workers pigeons are willing to trade off income for leisure if the price is right more specifically our results show that the slutsky substitution effect is positive for exactly compensated wage decreases and that leisure is a normal good at all points in the choice space in addition to demonstrating the pervasiveness of income leisure tradeoffs the experiments show strong regularities in the size of the substitution and income effects at varying wage rates with increases in real wages both income and substitution effects get smaller but the substitution term decreases more rapidly than the income term resulting in a backward bending labor supply curve at higher wages the plan of the paper is as follows in section i we characterize the procedures employed in the laboratory for studying labor supply and summarize well established characteristics of this behavior as it is relevant to the present experiments sections ii and iii describe the hypotheses tested and the experimental procedures employed in the tests results of the experiments are given in section iv some of the implications of these results are discussed in a brief concluding section space considerations do not permit a detailed discussion of the reasons why economists should take seriously the investigation of economic theories using nonhuman subjects see kagel and battalio for this argument for the more skeptical reader we simply note that if one defines economics as the study of the allocation of scarce resources among unlimited and competing uses albert rees 1968 p 472 then animal psychologists ecologists and biologists have been involved in studying economic behavior for some time now rapport and turner jack hirschleifer h rachlin it is but a small step to take the technologies of these related disciplines and apply them to behavior of interest to economists for example labor supply behavior at a minimum such studies expand considerably the scope for comparative economic analysis at a maximum they provide a laboratory for identifying testing and better understanding general laws of economic behavior use of this laboratory is predicated on the fact that behavior as well as structure vary continuously across species and that principles of economic behavior would be unique among behavioral principles if they did not apply with some variation of course to the behavior of nonhumans

the effects of consumers price expectations on sellers dynamic pricing strategies abstract the authors propose a dynamic market equilibrium model to investigate how consumers form price expectations and how these expectations influence their sequential search behavior and prices in the market they derive a perfect bayesian nash equilibrium and show that whereas higher current period prices induce search consumers who observe higher historical prices form higher price expectations become more pessimistic and search less furthermore the authors show that when prices increase as a result of an increase in marginal costs consumers respond by searching more which then leads to higher prices and instant price adjustment in contrast because consumer search activities decline when prices fall sellers may respond by lowering their prices just enough to dampen consumers search tendencies when costs decrease the authors test their theoretical model and its implications and find support for it in a series of simulated market experiments

asymmetric reference price effects and dynamic pricing policies we consider a group of frequently purchased consumer brands which are partial substitutes and examine two situations the first where the group of brands is managed by a retailer and second where the brands compete in an oligopoly we assume that demand is a function of actual prices and reference prices and develop optimal dynamic pricing policies for each situation in addition to researchers studying pricing strategy our results may interest retailers choosing between hi lo pricing and an everyday low price and manufacturers assessing whether to follow procter gamble s lead and replace a policy of funding consumer price reductions through trade deals with a constant wholesale price a reference price is an anchoring level formed by customers based on the pricing environment the literature suggests that demand for a brand depends not only on the brand price but also whether the brand price is greater than the reference price a perceived loss or is less than it a perceived gain the responses to gains and losses are asymmetric broadly speaking we find that when enough consumers weigh gains more than losses the optimal pricing policy is cyclical likewise when they weigh losses more than gains a constant price is optimal thus we provide a rationale for dynamic pricing which is quite distinct from the three explanations previously offered 1 decreasing unit variable costs due to learning effects 2 the transfer of inventory to consumers who face lower inventory holding costs than do retailers and 3 competitive effects our explanations apply even when the other explanations do not i e in mature product categories where learning effects are minimal when retailer inventories are minimized through the use of just in time policies and when competitive effects do not exist as in a monopoly greenleaf 1995 has shown numerically that in the presence of reference price effects the optimal pricing policy for a monopolist can be cyclical we first analytically extend greenleaf s result to a monopolist with a constant cost of goods facing a homogeneous market where all customers either weigh gains more than losses or vice versa using this building block we examine a monopolist retailer managing multiple brands we assume that demand is a linear function of prices of multiple brands and together with an expression which reflects the reference price effect further we assume that the retailer maximizes average profit per period next we analyze a duopoly and extend the results to an oligopoly we assume that the manufacturers are able to set the retail prices as in an integrated channel here we retain the same demand function as for the retailer and derive markov perfect nash equilibria we use two alternative processes of reference price formation the exponential smoothed es past price process which is frequently used in the literature and for the multi brand situations the recently proposed reference brand rb process hardie johnson and fader 1993 in the latter the reference price is the current price of the last brand bought the reference brand we adapt the individual level rb formulation in hardie et al to an aggregate demand specification for the es process we obtain most results analytically for the rb process we use simulation finally we extend our results to a population with two customer segments segment 1 which weighs gains more than losses and segment 2 which does the opposite i e is loss averse when the market consists exclusively of segment 1 customers and es is the reference price process we find that prices are cyclical in all cases analyzed i e for a monopoly a monopolist retailer managing multiple brands a duopoly and an oligopoly if the rb formulation is the underlying process a monopolist retailer managing two brands uses cyclical prices but in a duopoly the equilibrium solution is for the brands to maintain constant prices when all customers belong to segment 2 i e they are loss averse constant prices are optimal in all cases for both reference price formulations when the population consists of both segment 1 and segment 2 and the es process applies we develop a sufficient condition for cyclical pricing policies to be optimal the condition is expressed in terms of the proportion of the two segment sizes the absolute difference between the gain and loss parameters of each segment and their respective exponential smoothing constants interestingly for reasonable values of the latter two factors cyclical policies are optimal even when the proportion of segment 1 is quite small similar magnitudes are obtained numerically for the rb case

optimal dynamic pricing for deteriorating items with reference price effects when inventories stimulate demand abstract in this paper we incorporate reference price effects into a deteriorating inventory problem when the demand rate depends on displayed stock level and selling price simultaneously reference price effects are formed empirically by customers to adjust current price perception on the basis of past purchases the market demand is assumed to be responsive to the difference between the current selling price and the reference price which is perceived as a loss or a gain we consider three scenarios of market demand loss neutrality loss aversion and loss seeking an optimal dynamic pricing model is established to determine a pricing strategy maximizing the discounted total profit over an infinite time horizon theoretical results are derived to demonstrate the existence of the optimal solutions and to explore the relationships between optimal pricing decisions and an initial reference price based on mild assumptions numerical example and sensitivity analysis are presented to illustrate the theoretical results and managerial insights finally concluding remarks are offered

technical note intertemporal price discrimination via reference price effects we consider the dynamic pricing problem a monopolistic seller faces when customers arrive in heterogeneous time periods and their purchase decisions are affected by reference prices formed from their past observations of prices we illustrate that a new form of price discrimination opportunity exists in such situations where the seller s optimal pricing strategy is a cyclic one even when the customers are loss neutral and their demand functions are identical this result differs from those of prior studies where the optimal price paths are shown to be asymptotically constant and thus is unique due to the interaction between the heterogeneous arrivals and the reference price effects we also provide the cycle length of the optimal pricing policy when the demand function is linear and when customers are loss neutral in this era when customer information is easier accessible our results suggest the sellers consider this new dimension of price discrimination in conjunction with the old ones to take advan

the money pump as a measure of revealed preference violations we introduce a measure of the severity of violations of the revealed preference axioms the money pump index mpi the mpi is the amount of money one can extract from a consumer who violates the axioms it is also a statistical test for the hypothesis that a consumer is rational when behavior is observed with error we present an application using a panel data set of food expenditures the data exhibit many violations of the axioms mostly the mpi for these violations is small the mpi indicates that the hypothesis of consumer rationality cannot be rejected

perceiving prospects properly when an agent chooses between prospects noise in information processing generates an effect akin to the winner s curse statistically unbiased perception systematically overvalues the chosen action because it fails to account for the possibility that noise is responsible for making the preferred action appear to be optimal the optimal perception patterns share key features with prospect theory namely overweighting of small probability events and corresponding underweighting of high probability events status quo bias and reference dependent s shaped valuations these biases arise to correct for the winner s curse effect

consumer normal price estimation market versus personal standards in reference price models internal reference price is typically estimated from actual market prices given the generally poor price knowledge consumers have exhibited in prior research the question is whether it is reasonable to use actual market prices to estimate consumers internal reference price standards the initial answer provided in this research surprisingly is yes although internal reference prices are measurable and do affect consumer price perception the gains in measuring and using those standards in predicting brand choice for frequently purchased products may not be worth the costs reasons why the surrogate price measure may work and implications for the measurement of internal reference price standards are considered

variable pricing in oligopoly markets behavioral research has found that consumers respond to variability in prices in addition to price levels we show that this finding can explain why some firms vary their prices more frequently than others we examine pricing strategies composed of an average price and price variability and employ logit market share models to analyze equilibrium pricing strategies in an oligopoly two competing logit specifications termed price sensitivity and payoff sensitivity are considered and are shown to yield contradictory implications for pricing policy from three empirical studies on restaurant choice we find that the price sensitivity model is the better model

debt relief and the current account an analysis of the hipc initiative in this paper i develop a model to investigate the connection between debt relief and current account sustainability this model can be used as a key input in assessing whether a hipc country s real exchange rate is overvalued and will thus need to go through devaluation the working of the model is illustrated for the case of nicaragua a country that in 2002 had one of the highest external debt to gdp ratios almost 300 per cent nicaragua is the second poorest country in the western hemisphere after haiti and for the last decade has relied very heavily on foreign assistance and aid moreover in the last few years nicaragua has run extremely large current account deficits in excess of 37 per cent of gdp during 1997 2001 largely financed by grants donations and migrant remittances

fixed versus flexible exchange rates in an equilibrium business cycle model abstract this essay re examines the question of which exchange rate regime is preferable using a rational expectations model that explicitly incorporates wealth and emphasizing the information signalling role of prices previous authors have stressed the argument that floating rates provide agents with an additional source of information which improves forecasting accuracy leading to more efficient allocations this paper adds the counterweighing argument that they also have the effect in contrast to fixed rates of introducing an additional source of monetary disturbances in the determination of real variables another issue addressed is the nature of exchange rate adjustments to monetary disturbances

demand curves for animal consumers results are reported from experiments showing that both income compensated and ordinary uncompensated demand curves for nonhuman consumers are negatively sloped essential commodities are determined to be gross complements while nonessential goods are independent or gross substitutes the experiments extend the concepts underlying value theory to nonhumans and provide a basis for intensive experimental investigations of additional aspects of the theory

anchoring in financial decision making evidence from jeopardy abstract this paper analyzes 12 596 daily double wagering decisions of 6064 contestants in the us game show jeopardy we exploit a situation in which a player has to unexpectedly wager on responding correctly to an unknown clue known as a daily double clue we find evidence consistent with the hypothesis of contestants anchoring heavily on the initial dollar value of a clue in wagering this positive relationship remains statistically significant at the one percent level after controlling for other characteristics that may independently affect wagering decisions such as scores clue categories time trends individual jeopardy experience and player fixed effects exploiting within player variation only raising the anchoring amount by 100 translates to an increase of 29 in the wager an alternative explanation of underlying strategic considerations appears unlikely and results are consistent throughout a number of robustness checks overall these findings suggest that anchoring can play a substantial role in financial decision making under pressure

are adults better behaved than children age experience and the endowment effect we find that large increases in age do not reduce the endowment effect supporting the hypothesis that people have reference dependent preferences which are not changed by repeated experience getting and giving up goods

riding the waves revealing the impact of intrayear category demand cycles on advertising and pricing effectiveness abstractgoing beyond traditional seasonality this research introduces the concept of the intrayear category demand cycle this phenomenon reflects demand cycles most consumer packaged goods categories experience throughout the year with periods of higher demand following periods of lower demand the author argues that acknowledging the existence of these cycles and understanding their impact on both advertising and pricing effectiveness and practice is critical for marketers specifically the author demonstrates how both advertising and price elasticities and observed advertising and prices evolve along these cycles for a unique set of 252 brands ranging from high advertising high priced premium mass brands to low advertising low priced value niche brands in 61 consumer packaged goods categories overall both advertising efectiveness and observed advertising are found to be stronger at demand peaks surprisingly consumer reactions to price decreases are weaker at demand peaks whereas reactions

neuroeconomics using neuroscience to make economic predictions neuroeconomics seeks to ground economic theory in detailed neural mechanisms which are expressed mathematically and make behavioural predictions one finding is that simple kinds of economising for life and death decisions food sex and danger do occur in the brain as rational theories assume another set of findings appears to support the neural basis of constructs posited in behavioural economics such as a preference for immediacy and nonlinear weighting of small and large probabilities a third direction shows how understanding neural circuitry permits predictions and causal experiments which show state dependence of revealed preference except that states are biological and neural variables

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

price promotions limiting competitive encroachment in this paper we explore equilibrium pricing strategies in an infinite horizon repeated game for an oligopoly we model the interactions between three firms in a market of switchers and loyals our analysis shows that if there are sufficiently large number of switchers in the market the demand parameter is within an acceptable range and the firms have a sufficiently low discount rate alternating promotions between national firms can be an outcome of a perfect nash equilibrium between competing firms this equilibrium results in an implicit collusion between national firms and therefore suggests that price promotions can be interpreted as a long run strategy pursued by national firms to defend their market shares from possible encroachments of a third firm in this way we attempt to provide an explanation for the patterns of promotion observed in some industries and in particular the beverage industry

fear anger and credit on bank robberies and loan conditions we study the impact of emotions on real world decisions made by loan officers by analyzing the loan conditions of loans granted immediately after a bank branch robbery we find significant differences in conditions of the loans granted after a robbery compared to changes in loan conditions that occur contemporaneously at unaffected branches in general loan officers seem to adopt so called avoidance behaviour in accordance with the literature on posttraumatic stress their avoidance behavior is halved within two weeks after the robbery and the effect further varies depending on the presence of a firearm during the robbery

a competitive dynamic pricing model when demand is interdependent over time abstract in this study we contribute to the dynamic pricing literature by developing a finite horizon model for two firms offering substitutable and nonperishable products with different quality levels customers can purchase and store the products even if they do not need them at the time in order to use them in future the stockpile of the products generated by customers affects the demand in future periods therefore the demand for each product not only is a function of prices and quality levels but also of the products stockpile levels in addition the stockpile levels change the customers consumption behavior more product in a stockpile leads to more consumption therefore we address not only the price and demand relationship but also the stockpiling and consumption relationship in a competitive environment the decision variable of each firm at the beginning of each period is its unit sale price we use a deterministic dynamic program to calculate the equilibrium prices at the beginning of each period by assuming that the market stockpile is public information we show the existence of a unique nash equilibrium we next consider the case when the firms do not know the market stockpile we then develop appropriate heuristics to calculate the optimal prices in each case a numerical study is also provided to calculate the price levels in different scenarios and compare their performances

an empirical analysis of latitude of price acceptance in consumer package goods scanner panel data analyses for sweetened and unsweetened drink categories with four brands in each support the presence of a region of price insensitivity around a reference price the analyses also suggest that consumers with higher average reference price have a wider latitude of price acceptance consumers with a higher frequency of purchase i e shorter average interpurchase time interval are found to have a narrower latitude of price acceptance because they are more aware of the range of price distributions finally consumers with a higher average brand loyalty have a wider latitude of price acceptance demonstrating greater tolerance of price fluctuations

nonparametric comparative revealed risk aversion abstract we introduce a nonparametric method to compare risk aversion of different investors based on revealed preference methods using yaari s 1969 50 definition of more risk averse than we show that it is sufficient to compare the revealed preference relations of two investors this makes the approach operational the central rationalisability theorem provides strong support for this approach we also provide a measure of economic significance to quantify the differences in risk aversion which can also help to interpret differences in risk aversion in parametric models the approach is an alternative or complement to parametric approaches and a robustness check as a necessary first step towards this comparative approach we show how to test data for consistency with stochastic dominance relations which can also be used to recover larger parts of preferences we include an application to experimental data by choi et al 2007 10 11 which demonstrates the potential of the comparative approach

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

loss aversion in aggregate macroeconomic time series abstract prospect theory has been the focus of increasing attention in many fields of economics however it has scarcely been addressed in macroeconomic growth models neither on theoretical nor on empirical grounds in this paper we use prospect theory in a stochastic optimal growth model thereafter the focus lies on linking the euler equation obtained from a prospect theory growth model of this kind to real macroeconomic data we will use generalized method of moments gmm estimation to test the implications of such a non linear prospect utility euler equation our results indicate that loss aversion can be traced in aggregate macroeconomic time series

an alternative explanation for lower repeat rates after promotion purchases several authors have observed that average repeat rates are lower after a promotion purchase one interpretation of this result is that a media coupon or cents off promotion undermines the consumer

on the profitability and cost of relationship lending abstract we provide evidence on the costs and profitability of relationship lending by banks we derive bank specific measures of loan rate smoothing for small business borrowers in response to exogenous shocks to their credit risk and to interest rates and then estimate cost and profit functions to examine how smoothing affects bank costs and profits our results suggests that in general loan rate smoothing in response to a credit risk shock is not part of an optimal long term contract between a bank and its borrower while loan rate smoothing in response to an interest rate shock is