2018
DOI: 10.1257/mic.20160230
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Contracts with Framing

Abstract: We study a model of contracts in which a profit-maximizing seller uses framing to influence buyers’ purchasing behavior. Framing temporarily affects how buyers evaluate different products, and buyers can renege on their purchases after the framing effect wears off. We characterize the optimal contracts with framing and their welfare properties in several settings. Framing that is not too strong reduces total welfare in regulated markets with homogenous buyers, but increases total welfare in markets with hetero… Show more

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Cited by 15 publications
(5 citation statements)
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“…Second, even if contrary to Kőszegi and Rabin clients would be willing to consider reference points that are not in line with their expectations, following Salant and Siegel (2018), the framing effect of the expert's suggested reference point may wear off if the client gets more time to make his decision, and by talking to family or friends realizes that the decision can also be considered from the perspective of other reference points. In this case, standard models of the expert-client relationship where the client is uninformed but still strategically interacts with experts may be more relevant.…”
Section: Discussionmentioning
confidence: 96%
“…Second, even if contrary to Kőszegi and Rabin clients would be willing to consider reference points that are not in line with their expectations, following Salant and Siegel (2018), the framing effect of the expert's suggested reference point may wear off if the client gets more time to make his decision, and by talking to family or friends realizes that the decision can also be considered from the perspective of other reference points. In this case, standard models of the expert-client relationship where the client is uninformed but still strategically interacts with experts may be more relevant.…”
Section: Discussionmentioning
confidence: 96%
“…Spiegler (2014) generalizes the analysis and applies this condition to study a firm's equilibrium strategy in other frame-dependent behavioral models. More recently, Salant and Siegel (2018) consider frames that can either increase a product's attractiveness or highlight a premium product temporarily, 7 and study the design of adverse-selection contract Hershey et al (1982).…”
Section: Literature Reviewmentioning
confidence: 99%
“…Different ways of framing the same information have an impact on the final consumer decisions (Hershey et al, 1982;Thaler, 1980;Tversky and Kahneman, 1979), implying firms should pay close attention to how the product information is presented in the first place. Indeed, firms can actively use framing to increase their profit (Piccione and Spiegler, 2012;Salant and Siegel, 2018). For an insurance firm, its PDS describes the terms of an insurance plan and reflects the framing of the related contingencies, and the design of the PDS is often up to the insurer.…”
Section: Introductionmentioning
confidence: 99%
“…6 Recently, Piccione and Spiegler (2012), Spiegler (2014), and Salant and Siegel (2018) intro-Finally, many economically important situations are one-time situations or have a rst period without precedents (in which case rst-period behaviour may be particularly important as in case of multiple equilibria, it may determine the equilibrium that will be played in the long run). As an example, think of competing rms designing a new product who have to adapt one of two distinct but equivalent standards.…”
Section: Introductionmentioning
confidence: 99%