Loss Aversion and Consumption Choice: Theory and Experimental Evidence
AbstractIn this paper we analyze a consumer choice model with price uncertainty, loss aversion, and expectation-based reference points. The implications of this model are tested in an experiment in which participants have to make a consumption choice between two sandwiches. We make use of the fact that participants diff er in their reported taste difference between the two sandwiches and the degree of loss aversion which we measure separately. We find that more loss-averse participants are more likely to opt for the cheaper sandwich provided that their reported taste difference is below some threshold, confirming the model’s predictions.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9183.
Date of creation: Oct 2012
Date of revision:
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Other versions of this item:
- Karle, Heiko & Kirchsteiger, Georg & Peitz, Martin, 2013. "Loss Aversion and Consumption Choice: Theory and Experimental Evidence," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79943, Verein für Socialpolitik / German Economic Association.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-03 (All new papers)
- NEP-CBE-2012-11-03 (Cognitive & Behavioural Economics)
- NEP-EVO-2012-11-03 (Evolutionary Economics)
- NEP-EXP-2012-11-03 (Experimental Economics)
- NEP-UPT-2012-11-03 (Utility Models & Prospect Theory)
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