Fungibility and Consumer Choice: Evidence from Commodity Price Shocks*

Hastings, Justine S.; Shapiro, Jesse M.

doi:10.1093/qje/qjt018

Cited by 211 publications

(113 citation statements)

References 59 publications

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“…Hastings and Shapiro (2013) document a related mechanism at the gas pump. When gas prices fall (rise), consumers disproportionately allocate the marginal savings (costs) towards purchasing a higher (lower) grade of gasoline.…”

Section: Purchases Of Durablesmentioning

confidence: 99%

Behavioral Household Finance

Beshears

Choi

Laibson

et al. 2018

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This chapter provides an overview of household finance. The first part summarizes key facts regarding household financial behavior, emphasizing empirical regularities that are inconsistent with the standard classical economic model and discussing extensions of the classical model and explanations grounded in behavioral economics that can account for the observed patterns. This part covers five topics: consumption and savings, borrowing, payments, asset allocation, and insurance. The second part addresses interventions that firms, governments, and other parties deploy to shape household financial outcomes: education and information, peer effects and social influence, product design, advice and disclosure, choice architecture, and interventions that directly target prices or quantities. This chapter is divided into two parts, each of which is further divided into several sections. The first part summarizes key facts regarding household financial behavior, emphasizing empirical regularities that are inconsistent with the standard classical economic model and discussing both extensions of the classical model and explanations grounded in behavioral economics that can account for the observed patterns. This part covers five topics: (I) consumption and savings, (II) borrowing, (III) payments, (IV) asset allocation, and (V) insurance. The second part addresses interventions that firms, governments, and other parties deploy to shape household financial outcomes: (VI) education and information, (VII) peer effects and social influence, (VIII) product design, (IX) advice and disclosure, (X) choice architecture, and (XI) interventions that directly target prices or quantities. The final section of the paper (XII) concludes. John BeshearsWe offer broad coverage of the household finance literature, but we limit the scope of our discussion along some dimensions. We focus on the U.S. institutional context and on empirical work based on U.S. data, although we do bring evidence from other wealthy countries to bear when germane and occasionally reference evidence from developing countries. We address household asset allocation but do not draw out its implications for asset pricing, which are covered by the asset pricing chapter in this handbook. Although household decisions regarding health care are relevant to household finance, we largely omit this literature from our chapter because it is covered in depth in the chapter on behavioral health economics. Finally, there is some overlap between our section on financial product design and the chapter on behavioral industrial organization; we refer readers to that chapter for related material on that topic. Part 1: Facts I. Consumption and SavingsBeginning with the seminal work of Modigliani and Brumberg (1954) and Friedman (1957), economists have embraced the view that households choose to save and borrow to smooth consumption over the lifecycle. Intuitively, if agents have concave utility functions over consumption, then they should spread consumption across time to optimally...

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Section: Purchases Of Durablesmentioning

confidence: 99%

Behavioral Household Finance

Beshears

Choi

Laibson

et al. 2018

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“…People have many years of experience with cars, and usage is sustained over long periods of time. For instance, consumers engage in mental accounting when buying gasoline (Hastings and Shapiro 2013), and they are subject to projection bias and salience when buying new cars (Busse et al 2015). The Singapore context is particularly attractive for several reasons.…”

Section: Ustomers Who Had Initially Paid More For a Season Subscripmentioning

confidence: 99%

Sunk Cost Fallacy in Driving the World’s Costliest Cars

Png

Reza

2018

Management Science

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Abstract.We develop a behavioral model of durable good usage with mental accounting for sunk costs. It predicts higher-than-rational usage that attenuates at a rate that increases with sunk costs. Singapore government policy varied the sunk cost of buying a new car. Using Singapore data, we estimate the elasticity of driving with respect to sunk costs to be 0.048, which implies that government policy between 2009 and 2013 was associated with 86 kilometers per month, or 5.6%, more driving. The results are robust to specifying sunk costs as relative to buyer income and estimation with Hong Kong data. We believe this to be the first field evidence of the sunk cost fallacy in usage of a major durable good.History: Accepted by John List, behavioral economics.

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“…Due to the very limited statistical power underlying these correlations, however, we caution against drawing any firm conclusions from them (see Appendix C for further details). 29 See, for example, Brown et al (2010), Lacetera et al (2012), or Hastings and Shapiro (2013) for empirical evidence that individuals focus more on some attributes than on others.…”

Section: Salience Of Product Attributesmentioning

confidence: 99%

Weather and the Psychology of Purchasing Outdoor-Movie Tickets

Buchheim

Kolaska

2016

SSRN Journal

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The consequences of many economic decisions only materialize in the future. To make informed choices in such decision problems, consumers need to anticipate the likelihood of future states of the world, the state-dependence of their preferences, and the choice alternatives that may become relevant. This complex task may expose consumers to psychological biases like extrapolative expectations, projection bias, or salience. We test whether customers are affected by such biases when they buy advance tickets for an outdoor movie theater, a real-world situation that, due to the availability of reliable weather forecasts, closely resembles a stylized decision problem under risk. We find that customers' decisions are heavily influenced by the weather at the time of purchase, even though the latter is irrelevant for the experience of visiting the theater in the future. The empirical evidence cannot be fully explained by a range of candidate rational explanations, but is consistent with the presence of the aforementioned psychological mechanisms.

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Fungibility and Consumer Choice: Evidence from Commodity Price Shocks*

Cited by 211 publications

References 59 publications

Behavioral Household Finance

Behavioral Household Finance

Sunk Cost Fallacy in Driving the World’s Costliest Cars

Weather and the Psychology of Purchasing Outdoor-Movie Tickets

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