Journal ArticleDOI
The Bright Side of Loss Aversion in Dynamic and Competitive Markets
Dmitri Kuksov,Kangkang Wang +1 more
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It is found that consumer loss aversion does not necessarily lead to lower prices or profits when firms compete over multiple periods and when the consumer reference price in subsequent periods is affected by current prices.Abstract:
A well-established phenomenon of consumer buying behavior is that consumers evaluate prices relative to a reference point and exhibit loss aversion; ie, their propensity to buy is more negatively affected by prices above the reference point than it is positively affected by prices below the reference point The objective of this paper is to analytically examine how the competitive strategy and profitability of firms are affected by the presence of consumer loss aversion in the price dimension Although we assume that consumer loss aversion increases consumer propensity to search for lower prices, we find that it does not necessarily lead to lower prices or profits when firms compete over multiple periods and when the consumer reference price in subsequent periods is affected by current prices Specifically, consumer loss aversion could lead to higher prices and profits when consumer valuation is sufficiently high relative to search costs and the proportion of consumers with positive search costs is in an intermediate range We also show that when forward-looking firms incorporate the negative effect of price promotions on future profits, the equilibrium range of price promotions may actually increaseread more
Citations
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Journal ArticleDOI
Will You Ever Trust the Review Website Again? The Importance of Source Credibility
Jung-Kuei Hsieh,Yi-Jin Li +1 more
TL;DR: The results show that the consistency or inconsistency between the online review and product performance can lead customers to reconsider their judgments of the credibility of online review websites, and that ISC affects both revisiting intention and positive word of mouth for such sites.
Journal ArticleDOI
Quality Disclosure Under Consumer Loss Aversion
Jianqiang Zhang,Krista J. Li +1 more
TL;DR: To alleviate consumer loss aversion (CLA), firms can disclose information to reduce consumers’ unceramic loss aversion.
Journal ArticleDOI
Multi-period optimization with loss-averse customer behavior
TL;DR: It is demonstrated how a dynamic programming model yields good results with customer loss aversion under realistic customer behavior assumptions, and the system can improve the efficiency of decision making and provide better customer service.
Journal ArticleDOI
Optimal consumer search with prospect utility in hybrid uncertain environment
TL;DR: In this paper, a consumer search model with prospect utility in a hybrid uncertain environment is proposed, where the uncertainty of the consumer's valuation for each product and the randomness of stockout are taken into account.
Journal ArticleDOI
Consumer fairness concerns and dynamic pricing in a channel
TL;DR: In this paper, the authors analyzed a growing market where the retailer faces a segment of consumers who have fairness concerns about retail price increases and found that the presence of consumers with fairness concerns can in equilibrium reduce both the first-period and second-period retail prices.
References
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Book ChapterDOI
Prospect theory: an analysis of decision under risk
Daniel Kahneman,Amos Tversky +1 more
TL;DR: In this paper, the authors present a critique of expected utility theory as a descriptive model of decision making under risk, and develop an alternative model, called prospect theory, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights.
Journal ArticleDOI
Prospect theory: analysis of decision under risk
Daniel Kahneman,Amos Tversky +1 more
Journal ArticleDOI
Mental Accounting and Consumer Choice
TL;DR: It’s time to get used to the idea that there is no such thing as a “right answer” to everything.
Journal ArticleDOI
Mental Accounting and Consumer Choice
TL;DR: In this article, a new model of consumer behavior using a hybrid of cognitive psychology and microeconomics was developed using a mental coding of combinations of gains and losses of a consumer.
ReportDOI
Myopic loss aversion and the equity premium puzzle
TL;DR: Mehra and Prescott as mentioned in this paper proposed a new explanation based on two behavioral concepts: investors are assumed to be "loss averse" meaning that they are distinctly more sensitive to losses than to gains.