This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.

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Time Discounting and Time Preference: A Critical Review

The author systematically examines one of the important issues of information — establishing the market price. He introduces the concept of «search» — where a buyer wanting to get a better price, is forced to question sellers. The article deals with various aspects of finding the necessary information.

Economics of Information

The authors present the first comprehensive, multidisciplinary review of consumer rebates that includes federal regulations, state laws, and academic research. They discuss four topics that have been the foci of consumer concerns and policy reform: rebate advertising, rebate redemption disclosures, rebate redemption processes, and rebate payment processes. With respect to each of these four topics, the authors identify federal guidelines for rebates by reviewing the 18 Federal Trade Commision rebate-related complaints and the 18 associated consent decrees. Furthermore, they discuss 15 rebate laws from 11 U.S. states, 7 of which were enacted since 2007. In addition, they review academic research related to rebates from diverse literatures including marketing, consumer behavior, psychology, and economics and identify research gaps. This information should help policy makers evaluate rebate policies to assess whether the policies are evidence based, and it should help academics identify unanswered research q...

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Policy and Research Related to Consumer Rebates: A Comprehensive Review:

We develop a model of reference-dependent preferences and loss aversion where “gain‐loss utility” is derived from standard “consumption utility” and the reference point is determined endogenously by the economic environment. We assume that a person’s reference point is her rational expectations held in the recent past about outcomes, which are determined in a personal equilibrium by the requirement that they must be consistent with optimal behavior given expectations. In deterministic environments, choices maximize consumption utility, but gain‐loss utility influences behavior when there is uncertainty. Applying the model to consumer behavior, we show that willingness to pay for a good is increasing in the expected probability of purchase and in the expected prices conditional on purchase. In within-day labor-supply decisions, a worker is less likely to continue work if income earned thus far is unexpectedly high, but more likely to show up as well as continue work if expected income is high.

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A Model of Reference-Dependent Preferences

The authors examine the implications of electronic shopping for consumers, retailers, and manufacturers. They assume that near-term technological developments will offer consumers unparalleled opportunities to locate and compare product offerings. They examine these advantages as a function of typical consumer goals and the types of products and services being sought and offer conclusions regarding consumer incentives and disincentives to purchase through interactive home shopping vis-à-vis traditional retail formats. The authors discuss implications for industry structure as they pertain to competition among retailers, competition among manufacturers, and retailer-manufacturer relationships.

Interactive home shopping: Consumer, retailer, and manufacturer incentives to participate in

In this article, the authors examine how consumer choice between hedonic and utilitarian goods is influenced by the nature of the decision task. Building on research on elaboration, the authors propose that the relative salience of hedonic dimensions is greater when consumers decide which of several items to give up (forfeiture choices) than when they decide which item to acquire (acquisition choices). The resulting hypothesis that a hedonic item is relatively preferred over the same utilitarian item in forfeiture choices than in acquisition choices was supported in two choice experiments. In a subsequent experiment, these findings were extended to hypothetical choices in which the acquisition and forfeiture conditions were created by manipulating initial attribute-level reference states instead of ownership. Finally, consistent with the experimental findings, a field survey showed that, relative to market prices, owners of relatively hedonic cars value their vehicles more than do owners of relat...

Consumer choice between hedonic and utilitarian goods.

Procrastination is all too familiar to most people. People delay writing up their research (so we hear!), repeatedly declare they will start their diets tomorrow, or postpone until next week doing odd jobs around the house. Yet people also sometimes attempt to control their procrastination by setting deadlines for themselves. In this article, we pose three questions: (a) Are people willing to self-impose meaningful (i.e., costly) deadlines to overcome procrastination? (b) Are self-imposed deadlines effective in improving task performance? (c) When self-imposing deadlines, do people set them optimally, for maximum performance enhancement? A set of studies examined these issues experimentally, showing that the answer is "yes" to the first two questions, and "no" to the third. People have self-control problems, they recognize them, and they try to control them by self-imposing costly deadlines. These deadlines help people control procrastination, hit they are not as effective as some externally imposed deadlines in improving task performance.

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Procrastination, Deadlines, and Performance: Self-Control by Precommitment

Consumers' attempts to control their unwanted consumption impulses influence many everyday purchases with broad implications for marketers' pricing policies. Addressing theoreticians and practitioners alike, this paper uses multiple empirical methods to show that consumers voluntarily and strategically ration their purchase quantities of goods that are likely to be consumed on impulse and that therefore may pose self-control problems. For example, many regular smokers buy their cigarettes by the pack, although they could easily afford to buy 10-pack cartons. These smokers knowingly forgo sizable per-unit savings from quantity discounts, which they could realize if they bought cartons; by rationing their purchase quantities, they also self-impose additional transactions costs on marginal consumption, which makes excessive smoking overly difficult and costly. Such strategic self-imposition of constraints is intuitively appealing yet theoretically problematic. The marketing literature lacks operationalizations and empirical tests of such consumption self-control strategies and of their managerial implications. This paper provides experimental evidence of the operation of consumer self-control and empirically illustrates its direct implications for the pricing of consumer goods. Moreover, the paper develops a conceptual framework for the design of empirical tests of such self-imposed constraints on consumption in consumer goods markets. Within matched pairs of products, we distinguish relative "virtue" and "vice" goods whose preference ordering changes with whet her consumers evaluate immediate or delayed consumption consequences. For example, ignoring long-term health effects, many smokers prefer regular (relative vice) to light (relative virtue) cigarettes, because they prefer the taste of the former. However, ignoring these short-term taste differences, the same smokers prefer light to regular cigarettes when they consider the long-term health effects of smoking. These preference orders can lead to dynamically inconsistent consumption choices by consumers whose tradeoffs between the immediate and delayed consequences of consumption depend on the time lag between purchase and consumption. This creates a potential self-control problem, because these consumers will be tempted to over consume the vices they have in stock at home. Purchase quantity rationing helps them solve the self-control problem by limiting their stock and hence their consumption opportunities. Such rationing implies that, per purchase occasion, vice consumers will be less likely than virtue consumers to buy larger quantities in response to unit price reductions such as quantity discounts. We first test this prediction in two laboratory experiments. We then examine the external validity of the results at the retail level with a field survey of quantity discounts and with a scanner data analysis of chain-wide store-level demand across a variety of different pairs of matched vice (regular) and virtue (reduced fat, calorie, or caffeine, etc.) product categories. The analyses of these experimental, field, and scanner data provide strong convergent evidence of a characteristic crossover in demand schedules for relative vices and virtues for categories as diverse as, among others, potato chips, chocolate chip cookies, cream cheese, beer, soft drinks, ice cream and frozen yogurt, chewing gum, coffee, and beef andturkey bologna. Vice consumers' demand increases less in response to price reductions than virtue consumers' demand, although their preferences are not generally weaker for vices than for virtues. Constraints on vice purchases are self-imposed and strategic rather than driven by simple preferences. We suggest that rationing their vice inventories at the point of purchase allows consumers to limit subsequent consumption. As a result of purchase quantity rationing, however, vice buyers forgo savings from price reductions through quantity discounts, effectively paying price premiums for the opportunity to engage in self-control. Thus, purchase quantity rationing vice consumers are relatively price in sensitive. From a managerial and public policy perspective, our findings should offer marketing practitioners in many consumer goods industries new opportunities to increase profits through segmentation and price discrimination based on consumer self-control. They can charge premium prices for small sizes of vices, relative to the corresponding quantity discounts for virtues. Virtue consumers, on the other hand, will buy larger amounts even when quantity discounts are relatively shallow. A key conceptual contribution of this paper lies in showing how marketing researchers can investigate a whole class of strategic self-constraining consumer behaviors empirically. Moreover, this research is the first to extend previous, theoretical work on impulse control by empirically demonstrating its broader implications for marketing decision making.

Consumption Self-Control by Rationing Purchase Quantities of Virtue and Vice

Economists, psychologists, and marketing researchers rely on measures of consumers' willingness to pay (WTP) in estimating demand for private and public goods and in designing optimal price schedules. Existing market research techniques for measuring WTP differ in whether they provide an incentive to consumers to reveal their true WTP and in whether they simulate actual point-of-purchase contexts. Common elicitation approaches are conjoint analysis and contingent valuation-based techniques that directly ask consumers about their WTP as well as simulated test markets. Second-price sealed-bid (Vickrey) auctions have also been proposed in the literature. We present an empirical comparison of several procedures for eliciting WTP that are applicable directly at the point of purchase. In particular, we test the applicability of Becker, DeGroot, and Marschak's (BDM, 1964) well-known incentive-compatible procedure for measuring the utility of lotteries to measuring consumer WTP. In three studies, we explore the reliability, validity, and feasibility of the procedure and show that it yields lower WTP estimates than non-incentive-compatible methods such as open-ended and double-bounded contingent valuation. Studies 1 and 2 are field studies of inexpensive grocery items that examine the performance of these methods under quasi-monopoly conditions in realistic everyday purchase situations. Study 3 applies the methods to an inexpensive durable and shows experimentally that differences in WTP estimates arise from the incentive constraint itself rather than the cognitive effort required in responding. This experiment also controls for strategic response behavior.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1812862_code117189.pdf?abstractid=285452&mirid=4

Measuring Consumer Willingness to Pay at the Point of Purchase

Economists, psychologists, and marketing researchers rely on measures of consumers’ willingness to pay (WTP) in estimating demand for private and public goods and in designing optimal price schedules. Existing market research techniques for measuring WTP differ in whether they provide an incentive to consumers to reveal their true WTP and in whether they simulate actual point-of-purchase contexts. The authors present an empirical comparison of several procedures for eliciting WTP that are applicable directly at the point of purchase. In particular, the authors test the applicability of Becker, DeGroot, and Marschak’s (1964) well-known incentive-compatible procedure for assessing the utility of lotteries to measuring consumers’ WTP. In three studies, the authors explore the reliability, validity, and feasibility of the procedure and show that it yields lower WTP estimates than do non-incentive-compatible methods such as open-ended and double-bounded contingent valuation. They show experimentally t...

Klaus Wertenbroch

Papers

Consumer choice between hedonic and utilitarian goods.

Procrastination, Deadlines, and Performance: Self-Control by Precommitment

Consumption Self-Control by Rationing Purchase Quantities of Virtue and Vice

Measuring Consumer Willingness to Pay at the Point of Purchase

Measuring Consumers' Willingness to Pay at the Point of Purchase