This research investigates how the nature of a product and the magnitude of a donation to charity interact to determine the effectiveness that a charity incentive will have in promoting a product. The results suggest that sensitivity to magnitude in the case of charity incentives (i.e., the size of the contribution made per purchase) is not as strong as sensitivity to magnitude in the case of monetary incentives (i.e., the percentage of the price being discounted). In addition, it is found that with large donation magnitudes competing with large monetary incentives, charity incentives will be significantly more effective in promoting products perceived as “frivolous luxuries” (e.g., a hot fudge sundae or a luxury cruise) than in promoting products perceived as “practical necessities” (e.g., a roll of paper towels or a new washing machine). In contrast, in the case of small donation magnitudes competing with correspondingly small monetary incentives, no significant difference in charity incentive effectiveness is observed between different product types. Finally, the effects of donation magnitude and product type are examined in the context of choosing among multiple charity‐linked brands. It is found that whereas brands linked to large donations are more likely to be preferred with frivolous products, brands linked to smaller donations are more likely to be favored with practical products.
Investors’ previous experiences with a stock affect their willingness to repurchase that stock. Using detailed trade data from two brokers, the authors document that investors are reluctant to repurchase stocks previously sold for a loss and stocks that have risen in price subsequent to a prior sale. The authors propose that this behavior reflects investors’ emotional reactions to trading and their attempts to distance themselves from negative emotions (e.g., disappointment, regret). Investors are disappointed when they sell a stock for a loss and regret having ever purchased the stock; these negative emotions deter investors from later repurchasing stocks they sold for a loss. Having sold a stock, investors are disappointed if the stock continues to rise and regret having sold the stock in the first place; these negative emotions deter investors from repurchasing stocks that go up since being sold. Thus, investors engage in reinforcement learning by repurchasing stocks whose previous purchase resulted in positive emotions and avoiding stocks whose previous purchase resulted in negative emotions.
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