We study the properties of a profit-maximizing monopolist's optimal price distribution when selling to a loss-averse consumer, where (following Koszegi and Rabin (2006)) we assume that the consumer's reference point is her recent rational expectations about the purchase. If it is close to...

We analyze contract choices, loan-repayment behavior, and welfare in a model of a competitive credit market when borrowers have a taste for immediate gratification. Consistent with many credit cards and subprime mortgages, for most types of nonsophisticated borrowers the baseline repayment terms...

It is widely known that loss aversion leads individuals to dislike risk, and as has been argued by many researchers, in many instances this creates an incentive for firms to shield consumers and employees against economic risks. Complementing previous research, we show that consumer loss...

We present a theory of individual choice in which the decisionmaker focuses more on, and hence weights more heavily, attributes on which the options in her consideration set are more different. Consistent with evidence on salience in monetary choices, our model predicts that the decisionmaker is...

We present a generally applicable theory of focusing based on the hypothesis that a person focuses more on, and hence overweights, attributes in which her options differ more. Our model predicts that the decision maker is too prone to choose options with concentrated advantages relative to...

A standard model of addictive process is Becker and Murphy's rational addiction' model, which has the key empirical prediction that the current consumption of addictive goods should respond to future prices, and the key normative prediction that the optimal government regulation of addictive...

The traditional normative analysis of government policy towards addictive bads is carried out in the context of a 'rational addiction' model, whereby the only role for government is in correcting the external costs of consumption of such goods. But available evidence is at least as consistent,...

We develop a career concerns model in which agents differ in taste for income in addition to ability, and derive basic implications of this framework. We argue that the model captures important aspects of ambition. Since ambitious agents are expected to work harder – and therefore be paid more...

We use Koszegi and Rabin's (2006) model of reference-dependent utility, and an extension of it that applies to decisions with delayed consequences, to study preferences over monetary risk. Because our theory equates the reference point with recent probabilistic beliefs about outcomes, it...