We present a new partial equilibrium theory of price adjustment, based on consumer loss aversion. In line with prospect … theory, the consumers' perceived utility losses from price increases are weighted more heavily than the perceived utility … depends on the consumers' rational price expectations from the recent past. By implication, demand responses are more elastic …

price. Firms adjust wages flexibly in response to variations in labor demand. The resulting theory of wage adjustment is …We present a new theory of wage adjustment, based on worker loss aversion. In line with prospect theory, the workers … response to small labor demand shocks, (2) wages are downward rigid but upward flexible for medium sized labor demand shocks …

of the banana plants because of sufficiently low elasticity of demand. Using the cyclones of 2006 and 2011 as exogenous … events, we identify the elasticity of demand for bananas in Australia to be around -0.5. We indeed find limited evidence for …

-constrained consumers' access to financial markets make demand insensitive to interest rate fluctuations. The demand of credit … price sector influence aggregate demand and, for monetary policy to have its desired effect, the central bank has to …

misperceptions of probability drive the favorite-longshot bias, as suggested by Prospect Theory …