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Pricing When Customers Care About Fairness But Misinfer Markups
Eyster, Erik - 2017
fairness to their consumers. The theory relies on two psychological assumptions. First, customers care about the fairness of … rigid. Embedded in a simple macroeconomic model, our pricing theory produces nonneutral monetary policy, a short …This paper proposes a theory of price rigidity consistent with survey evidence that firms stabilize prices out of …
Persistent link: https://www.econbiz.de/10012948083
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Fair Pricing
Rotemberg, Julio J. - 2021
I suppose that consumers see a firm as fair if they cannot reject the hypothesis that the firm is somewhat benevolent towards them. Consumers that can reject this hypothesis become angry, which is costly to the firm. I show that firms that wish to avoid this anger will keep their prices rigid...
Persistent link: https://www.econbiz.de/10013230827
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Pricing When Customers Care About Fairness But Misinfer Markups
Eyster, Erik; Madarasz, Kristof; Michaillat, Pascal - 2023
fairness to their consumers. The theory relies on two psychological assumptions. First, customers care about the fairness of … rigid. Embedded in a simple macroeconomic model, our pricing theory produces nonneutral monetary policy, a short …This paper proposes a theory of price rigidity consistent with survey evidence that firms stabilize prices out of …
Persistent link: https://www.econbiz.de/10014347525
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A Sparsity-Based Model of Bounded Rationality
Gabaix, Xavier - 2011
This paper defines and analyzes a "sparse max" operator, which is a less than fully attentive and rational version of the traditional max operator. The agent builds (as economists do) a simplified model of the world which is sparse, considering only the variables of first-order importance. His...
Persistent link: https://www.econbiz.de/10013127754
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A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets
Hong, Harrison G. - 2008
We assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are notquot; sufficient to predict future short-term rates movements, as would be the case if the centralquot; tendency was...
Persistent link: https://www.econbiz.de/10012774922
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Monetary Policy, Bounded Rationality, and Incomplete Markets
Farhi, Emmanuel - 2017
This paper extends the benchmark New-Keynesian model by introducing two frictions: (1) agent heterogeneity with incomplete markets, uninsurable idiosyncratic risk, and occasionally binding borrowing constraints; and (2) bounded rationality in the form of level-k thinking. Compared to the...
Persistent link: https://www.econbiz.de/10012960160
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A Theory of Civil Disobedience
Glaeser, Edward L. - 2015
From the streets of Hong Kong to Ferguson, Missouri, civil disobedience has again become newsworthy. What explains the prevalence and extremity of acts of civil disobedience?This paper presents a model in which protest planners choose the nature of the disturbance hoping to influence voters (or...
Persistent link: https://www.econbiz.de/10013019505
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Bounded Rationality and Strategic Complementarity in a Macroeconomic Model : Policy Effects, Persistence and Multipliers
Bomfim, Antulio N.; Diebold, Francis X. - 2021
Motivated by recent developments in the bounded rationality and strategic complementarity literatures, we examine an intentionally simple and stylized aggregative economic model, when the assumptions of fully rational expectations and no strategic interactions are relaxed. We show that small...
Persistent link: https://www.econbiz.de/10013222039
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Paternalism and Psychology
Glaeser, Edward L. - 2021
Does bounded rationality make paternalism more attractive? This Essay argues that errors will be larger when suppliers have stronger incentives or lower costs of persuasion and when consumers have weaker incentives to learn the truth. These comparative statics suggest that bounded rationality...
Persistent link: https://www.econbiz.de/10013239179
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Behavioral Implications of Rational Inattention with Shannon Entropy
Caplin, Andrew - 2013
The model of rational inattention with Shannon mutual information costs is increasingly ubiquitous. We introduce a new solution method that lays bare the general behavioral properties of this model and liberates development of alternative models. We experimentally test a key behavioral property...
Persistent link: https://www.econbiz.de/10013077941