Previous research shows that firms shroud high add-on prices in competitive markets with naive consumers leading to inefficiency. We analyze the effects of regulatory intervention via educating naive consumers on equilibrium prices and welfare. Our model allows firms to shroud, unshroud, or...

Loss aversion is one of the most robust findings to have emerged from behavioral economics. Surprisingly little attention, however, has been devoted to nominal loss aversion, the interaction of loss aversion and money illusion. People tend to think of transactions in terms of their nominal...

A key open question in economics is the practical, portable modeling of bounded rationality. In this short note, I report on ongoing progress that is more fully developed elsewhere. I present some results from a new model with boundedly rational features in which the decision-maker (DM) builds a...

We study the effect of frequent trading opportunities and categorization on pricing of a risky asset. Frequent opportunities to trade can lead to large distortions in prices if some agents forecast future prices using a simplified model of the world that fails to distinguish between some states....

This paper proposes a model of boundedly rational choice that explains the well known attraction and compromise effects. Choices in our model are interpreted as a cooperative solution to a bargaining problem among an individual’s conflicting dual selves. We axiomatically characterize a unique...

We study a market model in which competing firms use costly marketing devices to influence the set of alternatives which consumers perceive as relevant. Consumers in our model are boundedly rational in the sense that they have an imperfect perception of what is relevant to their decision...

When a firm decides which products to offer or put on display, it takes into account the products' ability to attract attention to the brand name as a whole. Thus, the value of a product to the firm emanates from the consumer demand it directly meets, as well as the indirect demand it generates...

A group of P identical managers has to make a choice between N alternatives. They benefit from reaching the decision quickly. In order to learn which is the best option, the alternatives have to be compared. A manager is able to identify the better one of two alternatives only with a certain...

We take the hierarchical resource allocation model in Van Zandt (2003a) and derive a simpler, reduced-form model of balanced hierarchies. This model uses continuous approximations; we derive bounds on the errors due to these approximations. We then give results that indicate that optimal...

This paper studies the consumption decisions of agents who face costs of acquiring, absorbing and processing information. These consumers rationally choose to only sporadically update their information and re-compute their optimal consumption plans. In between updating dates, they remain...