Frequency of price increases and perceived inflation. An experimental investigation
AbstractThe effect of frequency of subjective experience of price increases on perceived inflation, i.e. the subjective experience of general price development, is investigated. The paper presents a two-phased psychological model of perceived inflation: first, information about product price increases is gathered in daily purchase. Second, these are integrated into one perceived inflation judgment. In the integration phase, the complexity of the task should trigger heuristic processing: higher frequency of price increases should enhance their availability and thus perceived inflation. Participants simulated purchases in two scenarios. Frequency of products with increased prices was varied while overall expenditure increases as well as relative price increase of individual products were balanced. Experiment 1 presented a high frequency condition with a majority of increased prices relative to previously learned reference prices and a low frequency condition with a majority of stable prices. Experiment 2 balanced cognitive effort for product price change estimation over conditions by replacing absolutely stable prices with slightly increased prices. As predicted, perceived inflation was higher with high frequencies of increased prices, while price increases of individual products were judged correctly. Experiment 3 ruled out the alternative hypothesis that presentation duration, which in the previous experiments correlated with presentation frequency, might have been the determining factor.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Psychology.
Volume (Year): 32 (2011)
Issue (Month): 5 ()
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Web page: http://www.elsevier.com/locate/joep
Perceived inflation; Price increase; Purchase frequency; Availability; Bias;
Find related papers by JEL classification:
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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