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Prospect Theory and consumer behavior: Goals and Tradeoffs

Author

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  • Florent Buisson

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

I show that a loss averse consumer who must share her budget between two goods prefer allocations for which consumption equals reference point for at least one good. The phenomenon intensity depends on the curvature of the utility curve. These results are consistent with several stylized facts which cannot be explained by the standard consumer theory.

Suggested Citation

  • Florent Buisson, 2013. "Prospect Theory and consumer behavior: Goals and Tradeoffs," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00820722, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00820722
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00820722
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    Keywords

    Loss aversion; prospect theory; Aversion pour la perte; théorie des perspectives;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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