when do losses loom larger than gains abstract in defining limits to loss aversion novemsky and kahneman 2005 offer important new data and a needed summary of appropriate ways to think about loss aversion in this comment to novemsky and kahneman s article the authors consider the new empirical results that involve probabilistic buying and selling suggesting caution in generalizing the results to nonprobabilistic commerce the authors expand novemsky and kahneman s summary by exploring two critical constructs that help define the boundaries of loss aversion emotional attachment and cognitive perspective emotional attachment alters loss aversion by moderating the degree to which parting with an item involves a loss whereas shifts in cognitive perspective explain why items typically viewed as a loss are given more or less weight the goal is to use these constructs to characterize more specifically contexts in which losses loom larger than gains and to suggest specific ways that research into loss aversion could evolve

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

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

recursive non expected utility connecting ambiguity attitudes to risk preferences and the level of ambiguity abstract i study how risk preferences and the level of ambiguity influence ambiguity attitudes in uzi segal s recursive second order non expected utility model it is shown that the negative certainty independence axiom for risk preferences is equivalent to a global form of ambiguity aversion that entails ambiguity averse behavior irrespective of the state space and the decision maker s second order belief thus the second order version of the cautious expected utility model is the only subclass of segal s theory that robustly predicts ambiguity aversion moreover a mean preserving spread operation over second order beliefs which corresponds to a particular way of increasing the level of ambiguity is equivalent to increasing the relative strength of ambiguity aversion for each possible specification of risk preferences within the cautious expected utility model an application of the latter result establishes a negative relation between participation rates in an asset market and the level of ambiguity concerning the distribution of returns

keeping your gains close but your money closer the prepayment effect in riskless choices abstract although research on loss aversion now spans more than three decades researchers are still debating whether or in which cases the finding holds true for money we contribute to this debate by exploring how prepayment affects financial decisions in one set of experiments we show that when faced with a tradeoff between post and prepayment participants overvalue prepaid money and sometimes even prefer it over objectively higher gains importantly this effect was more pronounced when prepayment was more distant from its pure representation in dollars and cents experiment 1a as well as when potential losses were directly linked to specific options experiment 1b as far as the processes involved our results suggest that prepayment leads to increased personal commitment to prepaid options experiment 1c in a second set of experiments we show that even when the tradeoff element is eliminated participants are more motivated and engaged in a task that is prepaid rather than post paid experiments 2a and 2b based on our findings we discuss how firms can use prepayment mechanisms to get more out of their agents and how individuals can be motivated to better utilize their money

the boundaries of loss aversion abstract in this article the authors propose some psychological principles to describe the boundaries of loss aversion a key idea is that exchange goods that are given up as intended do not exhibit loss aversion for example the authors propose that money given up in purchases is not generally subject to loss aversion the results of several experiments provide preliminary support for the hypotheses the authors find that consistent with prospect theory loss aversion provides a complete account of risk aversion for risks with equal probability to win or lose the authors propose boundaries for this result and suggest further tests of the model

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

a reference price theory of the endowment effect abstract the common finding that selling prices exceed buying prices the so called endowment effect is typically explained by the assumptions that consumers evaluate potential transactions with respect to their current holdings and that the owners of a good regard its potential loss to be more significant than nonowners regard its potential acquisition in contrast to this pain of losing account the authors propose that the endowment effect reflects a reluctance to trade on terms that appear unfavorable with respect to salient reference prices in six experiments and eight more summarized in appendixes the authors show that manipulations that reduce the gap between valuations and reference prices reduce or eliminate the endowment effect these results suggest that the endowment effect is often best construed as an aversion to bad deals rather than an aversion to losing possessions

robust bidding and revenue in descending price auctions abstract we study the properties of dutch auctions in an independent private value setting where bidders face uncertainty over the type distribution of their opponents and evaluate their payoffs by the worst case from a set of probabilistic scenarios in contrast to static auction formats participants in the dutch auction gradually learn about the valuations of other bidders we show that the transmitted information can lead to changes in the worst case distribution and thereby shift a bidder s payoff maximizing exit price over time we characterise the equilibrium bidding function in this environment and show that the arriving information leads bidders to exit earlier at higher prices as a result the dutch auction systematically generates more revenue than the first price auction

on the consensus effect abstract individuals often tend to conform to the choices of others in group decisions compared to choices made in isolation we show that this behavior which we term the consensus effect is equivalent to a well known violation of expected utility namely strict quasi convexity of preferences which is shared by many popular non expected utility models in contrast to the equilibrium outcome when individuals are expected utility maximizers quasi convexity of preferences imply that group decisions may fail to properly aggregate preferences and strictly pareto dominated equilibria may arise

on the psychology of loss aversion possession valence and reversals of the endowment effect loss aversion states that losses loom larger than gains we consider two types of loss aversion defined by two interpretations of loss a loss can be defined 1 in terms of valence or 2 in terms of possession correspondingly valence loss aversion vla entails greater sensitivity to negative vs positive changes and possession loss aversion pla entails greater sensitivity to items leaving vs entering one s possession both types of loss aversion imply an endowment effect for attractive items but pla implies a reversal of the endowment effect for unattractive items experimental results show endowment effect reversals consistent with pla

vickrey auctions in the theory of expected utility with rank dependent probabilities abstract when decision makers maximize expected utility with rank dependent probabilities and the object being auctioned is a risky prospect then with independent private value vickrey auctions lose their demand revealing property moreover they might be non pareto optimal

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

planned versus actual betting in sequential gambles abstract anecdotal evidence indicates that in a gambling environment consumers may end up betting more than they had initially planned the authors assess this phenomenon in a series of three experiments in which people are exposed to sequential and fair gambles in a two stage process planned and actual bets the results show that in the planning phase people behave conservatively betting on average less after an anticipated loss and the same amount after an anticipated gain however after experiencing an actual loss in the first gamble people bet in a subsequent gamble significantly more than they had initially planned whereas on average there were no observable differences from the plan after an actual gain the reason for such asymmetry is due in part to people s tendency to underestimate at the planning phase of the gamble the impact of negative emotions in betting decisions during the actual phase of the gamble

dual pareto efficiency abstract consider an economy with d commodities and n individuals a pair p m where p is a price vector and m m1 m2 mn is a set of n individual income levels defines a set of individual budget constraints it is known that such pairs provide a framework for duality based investigations of pareto efficient allocations and of equilibria this paper employs this framework in a general setting not requiring smoothness or boundedness of budget sets to develop duals of the first and second theorems of welfare economics namely under suitable assumptions 1 the price income pair associated with any equilibrium is dual pareto efficient and 2 corresponding to any dual pareto efficient pair there is an allocation which together with the given prices forms an equilibrium journal of economic literature classification number s d00 d50 d51 d6l

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 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

the validity of qalys under non expected utility this paper examines applications of non expected utility in the health domain the most widely used utility model in health economics the time linear qaly model assumes i separability of quality of life and life duration and ii linearity of the utility for life duration we perform new tests which are robust to violations of expected utility of these two assumptions the data support separability but show that the utility for life duration is concave rather than linear the finding of concave utility may not be surprising in itself the contribution of this paper is to demonstrate this empirically without being invalidated by violations of expected utility it has by now been widely recognised that expected utility is not valid as a descriptive theory of decision under uncertainty the descriptive violations of expected utility have led to the emergence of several non expected utility theories the increasing importance of non expected utility makes it necessary to reassess applications that were previously based on expected utility examples of such reassessments include karni and safra 1989 crawford 1990 and dekel et al 1991 for game theory machina 1995 and wakker et al 1997 for insurance theory and cubitt and sugden 1998 for the evolution of preferences see starmer 2000 for a review the present paper examines applications of non expected utility in the health domain we focus on the main utility model in health economics the quality adjusted life years qaly model and present new theoretical foundations for and empirical tests of this model under non expected utility qalys provide a simple way to combine the two dimensions of health life duration and health status into a single utility index they are intuitively appealing which facilitates communication to policy makers and analytically tractable which explains their widespread use in practical studies a disadvantage of qalys is that they only represent individual preferences over health under strong assumptions if these assumptions do not hold then the use of qalys may lead to incorrect policy recommendations to gain insight into the validity of qalys it is necessary to assess the restrictiveness of the assumptions that the qaly model imposes in the most common version of the qaly model the time linear qaly model the utility of the health outcome of spending t years in health state q is equal to tv g where v is a utility function over health states that is in the time linear qaly model the utility for duration is linear it is well known that under expected utility linearity of utility implies risk neutrality as it turns out risk neutrality with

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

payoff equivalence in sealed bid auctions and the dual theory of choice under risk abstract this paper considers single item auctions in the private values framework with buyers whose preferences satisfy the axioms of yaari s econometrica 55 1987 95 dual theory of choice under risk it is shown that when their valuations are independently distributed risk averse buyers are indifferent among all the auctions contained in a large family of mechanisms that includes the standard auctions

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

existence and dynamic consistency of nash equilibrium with non expected utility preferences sufficient conditions for the existence of a nash equilibrium are given when preferences may violate the reduction of compound lotteries assumption rcla without rcla decision makers may not be indifferent between compound lotteries which have the same probabilities of final outcomes therefore the conditions depend on how players perceive the game whether they view themselves as moving first or second we also review conditions under which the equilibria will be dynamically consistent

auctions with uncertain numbers of bidders abstract we investigate bidders and seller s responses to ambiguity about the number of bidders in the first price auction fpa and the second price auction spa with independent private valuations we model ambiguity aversion using the maxmin expected utility model we find that bidders prefer the number of bidders to be revealed in the fpa are indifferent between revealing and concealing in the spa and prefer the spa to the fpa if bidders are more pessimistic than the seller then the seller prefers to conceal the number of bidders in the fpa and prefers the fpa to the spa

a dynamic mechanism and surplus extraction under ambiguity we study the question of auction design in an ipv setting characterized by ambiguity we assume that the preferences of agents exhibit ambiguity aversion in particular they are represented by the epsilon contamination model we show that a simple variation of a discrete dutch auction can extract almost all surplus this contrasts with optimal auctions under ipv without ambiguity as well as with optimal static auctions with ambiguity in all of these types other than the lowest participating type obtain a positive surplus an important point of departure is that the modified dutch mechanism is dynamic rather than static establishing that under ambiguity aversion even when the setting is ipv in all other respects a dynamic mechanism can have additional bite over its static counterparts a further general insight is that the standard revelation principle does not automatically extend to environments not characterized by subjective expected utility

dynamic consistency revelations in auctions and the structure of preferences analyzing the optimal bidding behaviour in ascending bid auctions and second price sealed bid auctions with independent private values we show that expected utility maximizing behaviour is equivalent to a dynamically consistent bidding in ascending bid auctions b the equivalence of the optimal bids in ascending bid auctions and in second price sealed bid auctions c bidding the value of the object in second price sealed bid auctions in addition the optimal bid in ascending bid auctions equals the value of the object if and only if the bidder s preferences on lotteries are both quasi concave and quasi convex

money is no object testing the endowment effect in exchange goods abstract we present a new experimental design to test whether the endowment effect exists for exchange goods like money we compare three groups to a baseline one endowed with money one endowed with chocolate coins and one endowed with chocolate coins described as tokens we find an endowment effect for chocolate coins but no endowment effect for money or for chocolate coins when they are described as tokens the results suggest that the endowment effect does not exist for exchange goods

strotz meets allais diminishing impatience and the certainty effect abstract decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward this work argues that diminishing impatience originates from the distinction between the certain present and the risky future a simple functional representation of preferences exhibiting time inconsistency when the future is uncertain is derived experimental evidence which is inconsistent with other formulations that account for diminishing impatience supports the proposed approach the new theory uncovers a tight relation between diminishing impatience and well known behavioral regularities in choice under risk and uncertainty jel d12 d81

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

the moderating effect of relationship norm salience on consumers loss aversion people are said to be loss averse when their pain of losing something exceeds their joy of gaining it this research proposes and tests a new moderator of loss aversion the type of relationship norms salient at the time the loss or the gain is experienced we suggest that mere salience of the norms of a communal relationship based on concern for the partner relative to those of an exchange relationship based on quid pro quo leads to a greater degree of loss aversion a typical endowment effect study supports our overall thesis and shows that differences across relationship norms are stronger in selling prices willingness to accept than in buying prices willingness to pay

efficiency analysis shortage functions arbitrage and martingales this paper shows that standard tools of efficiency analysis directional distance functions can be used to characterize the investment returns technology that ability to characterize the investment returns technology and fundamental duality relationships imply that directional distance functions can be used to detect the presence of an arbitrage to value financial assets in the absence of an arbitrage lying in the span of the market and to place bounds on the no arbitrage values of assets lying outside the span of the market

revenue non equivalence between the english and the second price auctions experimental evidence under second price sealed bid auctions when bidders have independent private valuations of a risky object submitting one s valuation is no longer dominant for non expected utility bidders this yields a breakdown in revenue equivalence between english auctions and second price auctions for non expected utility bidders in an experimental auction market selling a single risky object we find that an english auction yields higher seller revenue than the corresponding second price auction further the direction of revenue difference is supported by nash equilibrium bidding behavior of betweenness conforming non expected utility bidders under the additional hypothesis of bidders displaying a weak form of allais type behavior

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

equilibrium in economies with incomplete financial markets abstract this paper analyses an exchange economy in the absence of arrow debreu complete markets it is assumed that trading takes place in the sequence of spot markets and futures markets for securities payable in units of account unlimited short selling in securities is allowed a general equilibrium in such an economy is a set of current and future prices contingent on uncertain events and a set of individual plans such that all markets are cleared the existence of such an equilibrium is proved under usual assumptions this is in contrast to the case of futures markets for contingent futures commodities where an equilibrium may not exist the optimality of equilibrium allocations is also discussed

risk preferences and demand drivers of extended warranties we disentangle and study the relative importance of different risk preferences in explaining extended warranty purchases and the high premia paid for them empirical and behavioral research on insurance is at odds with whether diminishing returns curvature of the utility function or loss aversion and nonlinear probability weighting lead to observed consumer behavior this lack of consensus is primarily due to the inability of standard choice data to separate different risk preferences and the consequent need to rely on strong parametric assumptions we design two conjoint studies consistent with simultaneous and sequential decision making with choices about washing machines and extended warranties where subjects are given failure probabilities and repair costs using stated choice data from the surveys we can nonparametrically identify product and risk preferences we find that loss aversion is significantly more important than curvature and probability weights in explaining extended warranty choices importantly failure to decompose risk averse behavior into that arising from curvature loss aversion and probability weighting leads to lower washer prices and profits these findings are robust to alternate reference point assumptions we rationalize the premia paid for warranties by exploring retailer incentives to price discriminate and test the theory on complementary goods pricing finally based on counterfactual analysis forcing separate retailers to sell washers and extended warranties is not necessarily welfare enhancing as cited in the media and previous literature

the budget contraction effect how contracting budgets lead to less varied choice how do consumers adjust their spending when their budget changes a common view is that the allocation of one s current budget should not depend on previous budget allocations contrary to this the authors find that when the budget contracts to a particular level consumers select less variety as measured by the number of different items with some of the budget allocated to them than when their budget expands to that same level this budget contraction effect stems from a reduction in variety under the contracting budget not from variety expansion under the expanding budget evidence from five experiments indicates that the effect is driven by a desire to avoid feelings of loss associated with spreading allocation cuts relative to reference quantities from previous allocations across many items

measuring consumers willingness to pay at the point of purchase abstract economists psychologists and marketing researchers rely on measures of consumers willingness to pay wtp in estimating demand for private and public goods and in designing optimal price schedules existing market research techniques for measuring wtp differ in whether they provide an incentive to consumers to reveal their true wtp and in whether they simulate actual point of purchase contexts the authors present an empirical comparison of several procedures for eliciting wtp that are applicable directly at the point of purchase in particular the authors test the applicability of becker degroot and marschak s 1964 well known incentive compatible procedure for assessing the utility of lotteries to measuring consumers wtp in three studies the authors explore the reliability validity and feasibility of the procedure and show that it yields lower wtp estimates than do non incentive compatible methods such as open ended and double bounded contingent valuation they show experimentally t

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 endowment effect as self enhancement in response to threat the discrepancy between willingness to pay wtp and willingness to accept wta for a product referred to as the endowment effect has been investigated and replicated across various domains because of its implications for rational decision making the authors assume that implicit processes operate in the endowment effect and propose an explanation that is derived from the two main accounts of the effect ownership and loss aversion based on the implicit egotism and self affirmation literatures the model argues that selling is perceived as an implicit self threat and that sellers as a part of their automatic defense mechanism respond to this self threat by enhancing the value of the self associated object five studies test these conjectures and provide support for the proposed model

optimality and the theory of value abstract this paper presents two mutually dual optimization principles termed the zero maximum principle and the zero minimum principle respectively that characterize economic equilibria the first of these principles states an equivalence between equilibrium allocations and allocations that maximize total societal benefit and make that benefit zero the second principle states an equivalence between equilibrium price vectors and price vectors that minimize the total economic surplus and make that surplus zero the two principles provide new characterizations of equilibrium in private ownership economies and a new avenue for a proof of the fundamental existence theorem for such equilibria journal of economic literature classification number d50

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

developments in non expected utility theory the hunt for a descriptive theory of choice under risk this article reviews recent developments in the economic theory of individual decision making under risk since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways considerable research effort has now been devoted to the project of developing a superior descriptive model following an overview of non expected utility theories which distinguishes between conventional and non conventional approaches the paper seeks to assess these alternative models in terms of empirical success using laboratory and field data and theoretical usefulness the closing sections reflect on some new directions emerging in this literature

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

multiple unit holdings yield attenuated endowment effects previous endowment effect experiments have examined circumstances in which people encounter a single unit of a good e g one chocolate we contrast single unit treatments with multiple unit treatments in which participants encounter several units of a good e g five chocolates we observe endowment effects of typical magnitude for singleton holdings but attenuated endowment effects for multiple unit holdings moreover endowment effects consistently arise for singletons even as the definition of a unit is altered for instance participants holding one piece of chocolate show an endowment effect of standard size but so do participants holding one box of chocolates yet the box contains about 20 individual pieces of chocolate and participants given that many separate pieces show a substantially attenuated endowment effect we thus propose the property of unit dependence the definition of a unit can change but contingent on any given definition a pronounced endowment effect may emerge for singletons but not multiples this paper was accepted by teck ho decision analysis

explaining the endowment effect through ownership the role of identity gender and self threat the price people are willing to pay for a good is often less than the price they are willing to accept to give up the same good a phenomenon called the endowment effect loss aversion has typically accounted for the endowment effect but an alternative explanation suggests that ownership creates an association between the item and the self and this possession self link increases the value of the good to test the ownership account this research examines three moderators that theory suggests should affect the possession self link and consequently the endowment effect self threat identity associations of a good and gender after a social self threat the endowment effect is strengthened for in group goods among both men and women but is eliminated for out group goods among men but not women these results are consistent with a possession self link explanation and therefore suggest that ownership offers a better explanation for the endowment effect

focusing on the forgone how value can appear so different to buyers and sellers we propose that buying and selling price estimates reflect a focus on what the consumer forgoes in the potential exchange and that this notion offers insight into the well known difference between those two types of value assessment buyers and sellers differ not simply in their valuation of the same item but also in how they assess the value buyers tend to focus on their sentiment toward what they forgo typically the expenditure and buying prices are thus heavily influenced by variables such as salient reference prices by the same token sellers tend to focus on their sentiment toward surrendering the item and selling prices are hence more heavily influenced by variables such as benefits of possessing the item four studies examining buying and selling price estimates of tickets for national collegiate athletic association basketball games offer consistent support for these ideas the studies show that naturally occurring differences among respondents in attitudes relating to the tickets that sellers forgo e g significance of the game corresponded more closely to variation in selling prices than in buying prices conversely measures relating to the expenditure e g respondents concern with money corresponded more closely to buying prices than to selling prices using controlled manipulations we then showed that changes in aspects relating to the game e g expected climate in the stadium affected selling prices more than buying prices but changes relating to the expenditure e g list price of the ticket influenced buying prices more than selling prices we also showed that drawing attention to the benefits of possessing a ticket before asking for the price estimates influenced buying prices more than selling prices supporting our claim that otherwise these benefits are naturally more salient to sellers than buyers similarly drawing attention to alternative uses of money before asking for price estimates influenced selling prices more than buying prices

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

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

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

valuation of risky assets in arbitrage free economies with frictions this paper derives a framework for arbitrage models in markets with frictions it generalizes the existence of a valuation operator to such markets as in perfect markets the valuation operator is a linear operator and its existence is implied by the no arbitrage condition in imperfect markets the valuation operator is individual specific and depends on the agent s position in the market the methodology employed in the paper is duality in convex programming