American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Loss Aversion and Consumption Choice: Theory and Experimental Evidence
American Economic Journal: Microeconomics
vol. 7,
no. 2, May 2015
(pp. 101–20)
Abstract
We analyze a consumer-choice model with price uncertainty, loss aversion, and expectation-based reference points. The implications of this model are tested in an experiment in which participants have to make a consumption choice between two sandwiches. Participants differ in their reported taste for the two sandwiches and in their degree of loss aversion, which we measure separately. We find that more-loss-averse participants are more likely to opt for the cheaper sandwich, in line with theoretical predictions. The estimates in the model with rational expectations are slightly more significant than those with naïve expectations. (JEL D11, D12, D84, M31)Citation
Karle, Heiko, Georg Kirchsteiger, and Martin Peitz. 2015. "Loss Aversion and Consumption Choice: Theory and Experimental Evidence." American Economic Journal: Microeconomics, 7 (2): 101–20. DOI: 10.1257/mic.20130104Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D12 Consumer Economics: Empirical Analysis
- D84 Expectations; Speculations
- M31 Marketing
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