The firms in this model set non-binding list prices before competing for buyers by non-cooperatively granting discounts. Each firm has an incentive to set a high list price if, for example, the customers anchor their willingness-to-pay on the list price. However, list price competition occurs if...

The firms in this model set non-binding list prices before competing for buyers by non-cooperatively granting discounts. Each firm has an incentive to set a high list price if, for example, the customers anchor their willingness-to-pay on the list price. However, list price competition occurs if...

This paper considers a model of reference-dependent utility in which the individual makes a conscious choice of her reference point for future consumption. The model incorporates the combination of loss aversion and anticipatory utility as competing forces in the determination of the optimal...

Loss aversion, risk aversion, and the probability weighting function (PWF) are three central concepts in explaining decisionmaking under risk. I examine interlinkages between these concepts in a model of decisionmaking that allows for loss averse/tolerant stochastic reference dependence and...

Based on arguments of the `reference- dependent' theory of consumer choice we assume that a retailer's discount of a manufacturer's suggested retail price changes consumers' demand. We can show that the producer benefits from suggesting a retail price. If consumers are additionally sufficiently...

We provide a simple behavioral explanation of why manufacturers frequently announce non-binding suggested retail prices for their products. Our model is based on the assumption that once the actual price for a product exceeds its suggested retail price, the marginal propensity to consume...

We propose a model of instrumental belief choice under loss aversion. When new information arrives, an agent is prompted to abandon her prior. However, potential posteriors may induce her to take actions that generate a lower utility in some states than actions induced by her prior. These losses...

We experimentally test Kőszegi and Rabin's (2006, 2007) theory of reference-dependent preferences in the context of price expectations. In an incentivised valuation task, participants are endowed with a mug and provide their willingness to accept (WTA) to sell it. We manipulate the sale price...

The psychological basis for rank-dependent probability weighting, and for an inverse-S probability weighting function (PWF) in particular, has often been questioned. I examine the existence and shape of the PWF in a model allowing for optimism/pessimism over probability distributions and for...

This study employs a Discrete Choice Experiment (DCE) in the health-care sector to test the loss aversion theory that is derived from reference-dependent preferences: The absolute subjective value of a deviation from a reference point is generally greater when the deviation represents a loss...