We investigate whether violations of canonical axioms of choice under risk are mistakes or a manifestation of true preferences. First, we elicit axiom and gamble preferences and then allow subjects to revise their potentially conflicting preferences. Among the behavioral patterns that allow for...

We consider a monopolistic supplierś optimal choice of wholesale tariffs when downstream firms are privately informed about their retail costs. Under discriminatory pricing, downstream firms that differ in their ex ante distribution of retail costs are offered different tariffs. Under uniform...

We consider a simple trading relationship between an expectation-based loss-averse buyer and profit-maximizing sellers. When writing a long-term contract the parties have to rely on renegotiations in order to ensure materially efficient trade ex post. The type of the concluded long-term contract...

We consider a brand manufacturer who can offer, next to its high-quality product, also a decoy good and faces competition by a competitive fringe that produces low quality. We show that the brand manufacturer optimally provides a decoy good to boost the demand for its main product if consumers'...

Two non-expected-utility-theory approaches to model decision making under risk are regret theory (Loomes and Sugden, 1982; Bell, 1982) and salience theory (Bordalo, Gennaioli, and Shleifer, 2012). While the psychological underpinning of these two approaches is different, the models share the...

According to the Phase IV (2021-2030) rules of the EU ETS, the total amount of emissions permits allocated to firms is not fixed but endogenous. This implies that a national climate policy that overlaps with the emission trading system can have an impact on total aggregate emissions. Roughly...

We investigate the effect of a ban on third-degree price discrimination on the sustainability of collusion. We build a model with two firms that may be able to discriminate between two consumer groups. Two cases are analyzed: (i) Best-response symmetries so that profits in the static Nash...

We propose a theory of ex post inefficient renegotiation that is based on loss aversion. When two parties write a long-term contract that has to be renegotiated after the realization of the state of the world, they take the initial contract as a reference point to which they compare gains and...

Cost overrun is ubiquitous in public procurement. We argue that this can be the result of a constraint optimal award procedure when the procurer cannot commit not to renegotiate. If cost differences are more pronounced for more complex designs, it is optimal to fix a simple design ex ante and to...

For the procurement of complex goods the early exchange of information is important to avoid costly renegotiation ex post. We show that this is achieved by bilateral negotiations but not by auctions. Negotiations strictly outperforms auctions if sellers are likely to have superior information...