paper or plastic how we pay influences post transaction connection does the way that individuals pay for a good or service influence the amount of connection they feel after the purchase has occurred employing a multi method approach across four studies individuals who pay using a relatively more painful form of payment e g cash or check increase their post transaction connection to the product they purchased and or the organization their purchase supports in comparison to those who pay with less painful forms of payment e g debit or credit card specifically individuals who pay with more painful forms of payment increase their emotional attachment to a product decrease their commitment to nonchosen alternatives are more likely to publicly signal their commitment to an organization and are more likely to make a repeat transaction moreover the form of payment influences post transaction connection even when the objective monetary cost remains constant and when the psychological cost is indirect i e donating someone else s money increasing the psychological pain of payment appears to have beneficial consequences with respect to increasing downstream product and brand connection

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

almost common values auctions revisited in almost common value auctions one bidder the advantaged bidder has a valuation advantage over all other regular bidders it is well known that in second price auctions with two bidders even a slight private value advantage can have an explosive effect on auction outcomes as the advantaged bidder wins all the time and auction revenue is substantially lower than in a pure second price common value auction we explore the robustness of these results to the addition of more regular bidders in second price auctions and the extent to which these results generalize to ascending price english auctions in an effort to provide insight into when and why one ought to be concerned about such slight asymmetries

dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand the price quantity dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand curves is analysed we prove that chaotic dynamical behaviour can occur even if both the supply and demand curves are monotonic the introduction of adaptive expectations into the cobweb model leads to price quantity fluctuations with a smaller amplitude however at the same time the price quantity cycles may become unstable and chaotic oscillations may arise we present a geometric explanation why chaos can occur for a large class of nonlinear monotonic supply and demand curves

how economic contractions and expansions affect expenditure patterns in this study we attempt to understand how household budget allocations across various expenditure categories change when the economy is in recession or expansion the common assumption is that a household s tastes would not change as a function of economic conditions and therefore any adjustments in expenditure patterns during economic contractions expansions would simply be due to changes in the consumption budget standard economic models translate these budgetary effects into lateral movements along a set of fixed engel curves which relate category expenditure shares to total expenditures we propose and test a conceptual framework based on the notion of relative consumption which prescribes that for any given total consumption budget expenditure shares for positional goods services will decrease during a recession while shares for nonpositional goods services will increase i e shifting the entire engel curve upward or downward depending on the nature of the expenditure category and the economic conditions

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

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

rational and adaptive performance expectations in a customer satisfaction framework this article develops and tests alternative models of market level expectations perceived product performance and customer satisfaction market performance expectations are argued to be largely rational in nature yet adaptive to changing market conditions customer satisfaction is conceptualized as a cumulative construct that is affected by market expectations and performance perceptions in any given period and is affected by past satisfaction from period to period an empirical study that supports adaptive market expectations and stable market satisfaction using data from the swedish customer satisfaction barometer is reported

auctions with toeholds an experimental study of company takeovers we run experiments on english auctions where the bidders already own a part toehold of the good for sale the theory predicts a very strong explosive effect of even small toeholds while asymmetric toeholds do have an effect on bids and revenues in the lab which gets stronger the larger the asymmetry it is not nearly as strong as predicted we explain this by analyzing the flatness of the payoff functions which leads to large deviations from the equilibrium strategies being relatively costless this is a general fundamental weakness of this type of explosive equilibria which makes them fail when human players are involved our analysis shows that a levels of reasoning model explains the results better where this equilibrium fails moreover we find that although big toeholds can be effective in a takeover battle the cost to acquire them might be higher than the strategic benefit they bring

in store spending dynamics how budgets invert relative spending patterns the authors conduct four controlled lab experiments and one field study in a brick and mortar grocery store to demonstrate that relative spending the price of the purchased item relative to the mean price of the product category evolves nonlinearly and distinctly for budget and nonbudget shoppers while the relative spending of budget shoppers evolves in a concave manner the relative spending of nonbudget shoppers evolves inversely in a convex manner thus budget nonbudget shoppers spend relatively more less in the middle than at the beginning and toward the end of their shopping trip mediation analyses confirm that the pain of paying experienced while shopping drives price salience which then drives relative spending moreover manipulating shoppers pain of paying by altering the opportunity costs associated with their spending or drawing shoppers attention to their spending via real time spending feedback is shown to influence these spending patterns the research offers theoretical contributions to the in store decision making budgeting and pain of paying literature and has important implications for marketing and promotion strategies in retail and mobile technology environments as it suggests when a shopper may be more sensitive to price related factors

financial deprivation prompts consumers to seek scarce goods consumers assess their well being subjectively largely by comparing the present state of their lives to the state of comparable others and to their own state earlier in time the authors suggest that consumers similarly assess their financial wellbeing and when these evaluations highlight a deficit in their financial position they pursue strategies that mitigate the associated sense of financial deprivation specifically consumers counteract the relative deficit in their financial resources by acquiring goods that are consequently unavailable to other consumers in their environment the results from five studies suggest that the inferiority and unpleasant affect associated with financial deprivation motivates consumers to attend to choose and consume scarce goods rather than comparable abundant goods these effects diminish when scarce goods are limited because other people have already obtained them and when consumers attribute their unpleasant feelings to a source unrelated to financial deprivation

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

the effect of promotion on consumption buying more and consuming it faster the authors empirically demonstrate the existence of flexible consumption rates in packaged goods products how this phenomenon can be modeled and its importance in assessing the effectiveness of

a generalizable scale of propensity to plan the long and the short of planning for time and for money planning has pronounced effects on consumer behavior and intertemporal choice we develop a six item scale measuring individual differences in propensity to plan that can be adapted to different domains and used to compare planning across domains and time horizons adaptations tailored to planning time and money in the short run and long run each show strong evidence of reliability and validity we find that propensity to plan is moderately domain specific scale measures and actual planning measures show that for time people plan much more for the short run than the long run for money short and long run planning differ less time and money adaptations of our scale exhibit sharp differences in nomological correlates short run and long run adaptations differ less domain specific adaptations predict frequency of actual planning in their respective domains a very long run money adaptation predicts fico credit scores low planners thus face materially higher cost of credit

transaction decoupling how price bundling affects the decision to consume abstract in today s marketplace price bundling is widespread manufacturers and retailers routinely offer multiple products for a single bundled price although the effects of price bundling on purchase behavior have been well researched the effects of price bundling on postpurchase consumption behavior have received almost no attention in this article the authors build on the sunk cost literature e g thaler 1980 1985 and predict that price bundling leads to a disassociation or decoupling of transaction costs and benefits thereby reducing attention to sunk costs and decreasing a consumer s likelihood of consuming a paid for service e g a theater performance four studies show this to be the case in two lab studies the authors show that having a bundled four day ski pass as opposed to four one day ski tickets decreases a person s likelihood of skiing on the final day of a four day ski vacation they replicate this result in a field study showing that multiperformance ticket holders are

the effect of partitions on controlling consumption abstract the authors demonstrate that partitioning an aggregate quantity of a resource e g food money into smaller units reduces the consumed quantity or the rate of consumption of that resource partitions draw attention to the consumption decision by introducing a small transaction cost that is they provide more decision making opportunities so that prudent consumers can control consumption thus people are better able to constrain consumption when resources associated with a desirable activity which they are trying to control are partitioned rather than when they are aggregated this effect of partitioning is demonstrated for the consumption of chocolates study 1 and gambles study 2 in study 3 process measures reveal that partitioning increases recall accuracy and decision times importantly the effect of partitioning diminishes when consumers are not trying to regulate consumption studies 1 and 3 finally study 4 explores how habituation may decrease the amount of attention that pa

tracking costs of time and money how accounting periods affect mental accounting after people incur costs to get future benefits they usually track these costs in their mental accounts and are keen to receive the benefits when they become available we introduce the notion that costs and benefits can occur either in the same accounting period day season etc or in different periods our key argument is that monetary costs are tracked across accounting periods but that temporal costs are written off at the end of the period in which they are incurred thus accounting periods lead to a time money asymmetry in the tracking of costs and consequently in the likelihood of seeking benefits in a laboratory study an online panel study and a field study with movie theater patrons we demonstrate how this relationship among accounting periods cost tracking and benefit seeking is different for time than for money our findings offer insights into the sunk cost effect time money differences and mental accounting

an experimental analysis of auctions with interdependent valuations abstract we study experiments in an auction setting with interdependent valuation groups of three players receive private signals and then bid for a single indivisible item valuations for the item differ within groups and depend asymmetrically on a bidder s own and other bidders signals theoretically the english auction yields efficient allocations while other standard auction formats fail to do so consistent with equilibrium predictions we find that an english auction yields significantly more efficiency than a second price sealed bid auction we also study the seller s expected revenue and the bidders expected profits and find that the experimental results are close to the theoretical predictions

economic natural selection the theoretical structure of modern economics rests on the hypothesis that individual behavior is rational in the sense that choice can be described by utility maximizing behavior most economists view this hypothesis not as an assertion of procedural rationality but instead as a simple description of the outcomes of individual choice behavior furthermore requiring that every individual behave according to the predictions of rationality is typically viewed as too stringent even though many of our models assume it we are most confident about the predictions of rationality for aggregate behavior rather than individual behavior we believe that many but of course not all individuals behave approximately as predicted by models of rational behavior and we hope that our models are robust to small departures from rationality this belief is probably most firmly held for asset markets where many individuals interact repeatedly and the payoffs for good decisions can be large but why should we believe that individual level rationality hypotheses yield good predictions for aggregate asset market behavior there are two answers to this question the first answer entails adaptive response individuals who do not behave as predicted by rationality may modify their behavior over time they could imitate the successful they could experiment or they could learn from their past mistakes the second answer entails natural selection the market selects for those whose behavior is most nearly optimal those who for whatever reason behave as if they are rational take wealth away from those who behave otherwise ultimately the market is dominated by seemingly rational individuals and prices converge to their rational expectations equilibrium values this answer also requires some kind of innovation if the initial set of decision rules contains no rational rule natural selection alone will not drive the economy to rationality but if randomly chosen new rules enter the market from time to time rational or nearly rational rules will sooner or later enter the market and be selected for in the course of our research we have addressed both adaptation and natural selection here we focus on natural selection the appeal to natural selection for the defense of various rationality hypotheses has a long tradition in economics but until recently there was little formal investigation of its validity alchian 1950 and friedman 1953 both used it in defense of the hypothesis of profit maximization their argument was that firms that behave as if they maximize profits would drive out other non maximizing firms winter 1964 1971 1975 formalized and explored these ideas but the link between profitability and fitness in his work was assumed

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

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

earmarking and partitioning increasing saving by low income households abstract this research examines the effects of earmarking money on savings by low income consumers in particular the authors test two interventions that are designed to enhance the effects of earmarking 1 using a visual reminder of the savings goal and 2 dividing the earmarked money into two parts consistent with prior research suggesting that partitioning increases self control people save more when earmarked money is partitioned into two accounts than when it is pooled into one account in addition the presence of the visual reminder increases the savings rate the authors conclude with implications for consumer welfare and directions for further research

payment depreciation the behavioral effects of temporally separating payments from consumption research suggests that individuals mentally track the costs and benefits of a consumer transaction for the purpose of reconciling those costs and benefits on completion of the transaction prelec and loewenstein 1998 thaler 1980 1985 in transactions where costs precede benefits this can lead to a systematic and economically irrational attention to sunk costs arkes and blumer 1985 thaler 1980 in this article we consider economic exchanges in which costs significantly precede benefits as with many prepayment types of consumer transactions we predict a consumer will gradually adapt to a historic cost with the passage of time thereby decreasing its sunk cost impact on the consumption of a pending benefit we label this process of gradual adaptation to costs payment depreciation in a series of experiments we find evidence of payment depreciation across a range of consumer transactions and offer insight into the behavioral implications of temporally separating costs from benefits

adaptive learning and roads to chaos the case of the cobweb abstract we investigate the dynamics of the cobweb model with adaptive expectations a linear demand curve and a nonlinear s shaped increasing supply curve both stable periodic and chaotic price behaviour can occur we investigate how the dynamics of the model depend on the parameters both infinitely many period doubling and period halving bifurcations can occur when the demand curve is shifted upwards the same result holds with respect to the expectations weight factor

how buyers perceive savings in a bundle price an examination of a bundle s transaction value although bundling the selling of two or more products and or services at a single price has a history of economic research marketing oriented investigations have appeared only recently this pap

the reality game abstract we introduce an evolutionary game with feedback between perception and reality which we call the reality game it is a game of chance in which the probabilities for different objective outcomes e g heads or tails in a coin toss depend on the amount wagered on those outcomes by varying the reality map which relates the amount wagered to the probability of the outcome it is possible to move continuously from a purely objective game in which probabilities have no dependence on wagers to a purely subjective game in which probabilities equal the amount wagered we study self reinforcing games in which betting more on an outcome increases its odds and self defeating games in which the opposite is true this is investigated in and out of equilibrium with and without rational players and both numerically and analytically we introduce a method of measuring the inefficiency of the game similar to measuring the magnitude of the arbitrage opportunities in a financial market we prove that the inefficiency converges to equilibrium as a power law with an extremely slow rate of convergence the more subjective the game the slower the convergence

waiting time and decision making is time like money time is a resource as such consumers have to make decisions regarding their use of time in the purchase and consumption of goods and services using prospect theory and mental accounting as theoretical frameworks this article investigates whether consumers treat time like money when they make decisions in a series of studies we found that the value of consumers time is not constant but depends on contextual characteristics of the decision situation our results also suggest that in deterministic situations people make decisions involving time losses in a manner consistent with the convex loss function proposed by prospect theory however in decision making under conditions of risk people seem to make risk averse choices with respect to decisions in the domain of time in contrast to the risk seeking behavior often found with respect to decisions involving losses of money we discuss the nonfungibility of time as an explanation for the discrepancy between decisions involving time and those involving money

when choosing makes a good thing better temporal variations in the valuation of hedonic consumption abstract this research investigates how the valuation of delayed consumption of hedonic products such as concerts and chocolate varies with the passage of time between choice and consumption the authors find that when consumers make their own choices they exhibit increases in evaluations of delayed consumption but only if the interval between choice and consumption is relatively short the effect attenuates over longer periods resulting in an inverted u shaped relationship between evaluations and time in contrast when somebody else chooses the same option for the consumer evaluations decrease with the passage of time these effects depend on the extent of intrinsic motivation toward the object of consumption and occur only for consummatory consumption that is of inherent interest moreover anticipatory increases in evaluations before consumption have ironic negative effects on postconsumption evaluations the authors discuss implications and directions for further research

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

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