One of the applications of the prospect theory is the behavioral phenomenon of the negative elasticity of the individual labor supply. This working paper argues that the negative elasticity of labor supply can be understood better with the help of the interpretation of the Slutsky equation with...

The paper argues that sunk costs’ sensitivity can lead to the optimal consumption-leisure choice under price dispersion. The increase in quantity to be purchased with the extension of the time horizon of the consumption-leisure choice equalizes marginal costs of search with its marginal...

The paper discovers microeconomic mechanism of Veblen effect as well as of Giffen case as results of the negative marginal utility of money. The marginal utility of consumption also becomes negative. The total consumption-leisure utility is increased due to the increase in leisure time. This...

The analysis of the propensity to search specifies the “common” or the ordinary model of consumer behavior based on the synthesis of the neoclassical approach with satisficing concept and “leisure” and “labor” models of behavior that represent different combinations of conspicuous...

To determine whether individuals take into account sunk costs when making deci- sions, Thaler (1980, p.48) conducted an experiment in which anonymous individuals decided to enter an \all-you-can-eat" pizza restaurant; a random selection of those customers was given back the $2.50 they had paid....

In an often quoted article, Genesove and Mayer (2001) observe that house sellers are reluctant to sell at a loss, and attribute this finding to loss aversion. I show that loss aversion cannot explain this phenomenon

I show that a loss averse consumer who must share her budget between two goods prefer allocations for which consumption equals reference point for at least one good. The phenomenon intensity depends on the curvature of the utility curve. These results are consistent with several stylized facts...

The paper introduces the concept of adjustment utility, that is, reference-dependent utility from expectations. It offers an explanation for observed preferences that cannot be explained with existing models, and yields new predictions for individual decision making. The model gives a simple...

There is widespread evidence that monetary policy exerts asymmetric effects on output over contractions and expansions in economic activity, while price responses display no sizeable asymmetry. To rationalize these facts we develop a dynamic general equilibrium model where households' utility...

A theory is proposed in which preferences are conditional on reference points. It is related to Tversky and Kahneman’s reference-dependent preference theory, but is simpler and deviates less from conventional consumer theory. Preferences conditional on any given reference point satisfy...