Expected prices as reference points—Theory and experiments

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Lukas Wenner, University College London Discussion papers of the WZB serve to disseminate the research results of work in progress prior to publication to encourage the exchange of ideas and academic debate. Inclusion of a paper in the discussion paper series does not constitute publication and should not limit publication in any other venue. The discussion papers published by the WZB represent the views of the respective author(s) and not of the institute as a whole. Terms of use: Documents inCopyright remains with the authors. AbstractExpected Prices as Reference Points -Theory and Experiments * I show theoretically that applying the model of Köszegi and Rabin (2006) to a simple purchasing decision where consumers are ex-ante uncertain about the price realisation, gives -when changing the underlying distribution of expected prices -rise to counterintuitive predictions in contrast with a "good deal model" where consumers are predicted to be disappointed (rejoice) when the realised price is perceived as being worse (better) than the other possible realisation. While the underlying ideas of both models are similar with respect to expectation-based reference points, the different results come from the concept of Personal Equilibrium in Köszegi and Rabin (2006). The experimental results show some support for the simpler good deal model for a number of different real consumption goods though the support is weaker for goods that either have a salient market price or no market price outside of the experiment.

Searching for the Reference Point

“…3 For example, Abeler et al (2011), Card and Dahl (2011), Crawford and Meng (2011), Gill and Prowse (2012), and Bartling et al (2015). 4 For example, Baucells et al (2011), Heffetz and List (2014), Lien and Zheng (2015), Wenner (2015), and Allen et al (2017).…”

Follow Your Heart: How Is Willingness to Pay Formed under Multiple Anchors?

“…There is a wealth of research providing insights into reference prices, how they can be measured or modeled, and how they affect consumer purchase behavior ( Mazumdar et al, 2005 ). The effects of reference price on consumer choice have been recognized; moreover, the concept of a reference point has been extended to other stimuli such as price promotions ( Lattin and Bucklin, 1989 ), product quality ( Hardie et al, 1993 ), and expected price ( Wenner, 2015 ).…”

Adaptation of utility functions to reward distribution in rhesus monkeys

“…Because studies on reference-dependence generally focus on identifying a unique reference-point (Baillon et al, 2015), or on describing behaviours under specific reference predictions (Allen et al, 2016;Crawford & Meng, 2011;Wenner, 2015), there is, as of yet, no way of corroborating or contradicting the previous hypotheses on the emergence of reference-points. The few studies that consider shifts in preferences generally do so in a single distribution, local context: they document reference-point changes following the wins or losses of risky gambles (Arkes et al, 2008(Arkes et al, , 2010Shi et al, 2015); never the impact that changes in expectation have on decision-making.…”