Loss Aversion and Consumption Choice: Theory and Experimental Evidence
In 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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| Date of creation: | Oct 2012 |
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| Handle: | RePEc:cpr:ceprdp:9183 |
| Contact details of provider: | Postal: Phone: 44 - 20 - 7183 8801 Fax: 44 - 20 - 7183 8820
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References listed on IDEAS
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- Matthew Rabin., 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Economics Working Papers E00-279, University of California at Berkeley.
- Heiko Karle, 2013. "Creating Attachment through Advertising: Loss Aversion and Pre–Purchase Information," CER-ETH Economics working paper series 13/177, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Thierry Post & Martijn J. van den Assem & Guido Baltussen & Richard H. Thaler, 2008. "Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show," American Economic Review, American Economic Association, vol. 98(1), pages 38-71, March.
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