Loss Aversion and Consumption Choice: Theory and Experimental Evidence
- Karle, Heiko Eidgenössische Technische Hochschule (ETH) Zurich, Center for Law and Economics, 8092 Zurich, Switzerland (e-mail: )
- Kirchsteiger, Georg European Centre for Advanced Research in Economics and Statistics (ECARES), Université Libre de Bruxelles (ULB), B-1050 Brussels, Belgium, Center for Economic and Policy Research (CEPR), Center for Economic Studies and ifo Institut (CESifo), and Vienna Center for Experimental Economics (VCEE) (e-mail: )
- Peitz, Martin Department of Economics, University of Mannheim, 68131 Mannheim, Germany, CEPR, Centre on Regulation in Europe (CERRE), CESifo, Economics Network for Competition and Regulation (ENCORE), Mannheim Centre for Competition and Innovation (MaCCI), and Zentrum für Europäische Wirtschaftsforschung (ZEW) (e-mail: )
Published in:
- American Economic Journal: Microeconomics. - American Economic Association. - 2015, vol. 7, no. 2, p. 101-120
English
We analyze a consumer-choice model with price uncertainty, loss aversion, and expectation-based reference points. The implications of this model are tested in an experiment in which participants have to make a consumption choice between two sandwiches. Participants differ in their reported taste for the two sandwiches and in their degree of loss aversion, which we measure separately. We find that more-loss-averse participants are more likely to opt for the cheaper sandwich, in line with theoretical predictions. The estimates in the model with rational expectations are slightly more significant than those with naïve expectations. (JEL D11, D12, D84, M31)
- Language
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- English
- Open access status
- green
- Identifiers
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- DOI 10.1257/mic.20130104
- ISSN 1945-7669
- Persistent URL
- https://roar.hep-bejune.ch/global/documents/295354
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