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The Compromise Effect: A Literature Review
The Compromise Effect: A Literature Review

... compromise option in the choice set” (Sheng, Parker and Nakamoto 2005, p. 597) was found to be correct and statistically robust (Sheng, Parker and Nakamoto 2005, p. 600). A bi-product of these aforementioned rationales is that brands that become synonymous with the compromise option in a given choic ...
Chapter 3A Consumer Surplus, Producer Surplus and Market
Chapter 3A Consumer Surplus, Producer Surplus and Market

... Consumer Surplus, Producer Surplus and Market Efficiency 1. Consumer surplus measures the value between the price consumers are willing to pay and the a. producer surplus price. b. deadweight gain price. c. actual price paid. d. preference price. ANS a. Incorrect. Consumer surplus is the value betwe ...
Approximate Aggregation under Uncertainty
Approximate Aggregation under Uncertainty

... to date have been negative.’ Two exceptions are the special cases of essentially identical homothetic (or quasi-homothetic) preferences6*’ and of diverse homothetic preferences with a fixed (i.e., price-independent) distribution of incomea Furthermore, homotheticity has been shown to be not only suf ...
Appendex to Chapter 3
Appendex to Chapter 3

... 8. Suppose in Exhibit A-7 that exchange in the market for good X yields triangle ABE. This means that which of the following conditions exists in the market? a. Only consumer surplus b. Only producer surplus c. Deadweight loss d. Maximum consumer plus producer surplus ANS: d. Only at the equilibrium ...
(consumer + producer surplus).
(consumer + producer surplus).

... 8. Suppose in Exhibit A-7 that exchange in the market for good X yields triangle ABE. This means that which of the following conditions exists in the market? a. Only consumer surplus b. Only producer surplus c. Deadweight loss d. Maximum consumer plus producer surplus D. Only at the equilibrium poi ...
Second-Best Antitrust in General Equilibrium
Second-Best Antitrust in General Equilibrium

The Neural Substrates of Incidental Sensory
The Neural Substrates of Incidental Sensory

... Upon submission, the reviewers were curious to know whether our unconditioned stimulus, lithium chloride (LiCl, 0.3M) was causing the CTA to novel sucrose or whether it was merely the discomfort of receiving an injection after exposure. I conducted this control experiment independently to prove that ...
Critical loss.qxp
Critical loss.qxp

... travel time, but then translated this into a price-elasticity of demand so as to compare the results with the critical loss formula. ...
Agricultural, Food and Environmental Policy
Agricultural, Food and Environmental Policy

... Comparison of a new policy to the status quo • Policy option is preferred to the status quo if there are efficiency gains – Policy change => gainers and losers – gainers could compensate losers – all better off = welfare improvement ...
Behaviourist Approach Model Answers
Behaviourist Approach Model Answers

... Behaviourists study only observable behaviour. They would not be interested in studying mental behaviour because this takes place inside the head, and cannot be observed. This makes their study of behaviour very objective. Behaviourists produce testable hypotheses. These are predictions about what t ...
File
File

... Concept of Biological Preparedness: Organisms are biologically predisposed to create certain associations between certain stimuli. These associations are frequently essential for survival, so it is no wonder they form easily. ...
ECO 481
ECO 481

... • There is no “personal” benefit to understanding how markets work. • We tend to believe they are zero-sum games. • Implies - cutthroat competition, seller ad in, monopolies and immoral profits. • And, producers don’t want competition! • SR gains outweigh LR costs. • Friedman on business ...
1

Loss aversion



In economics and decision theory, loss aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains. Most studies suggest that losses are twice as powerful, psychologically, as gains. Loss aversion was first demonstrated by Amos Tversky and Daniel Kahneman.This leads to risk aversion when people evaluate an outcome comprising similar gains and losses; since people prefer avoiding losses to making gains.Loss aversion may also explain sunk cost effects.Loss aversion implies that one who loses $100 will lose more satisfaction than another person will gain satisfaction from a $100 windfall. In marketing, the use of trial periods and rebates tries to take advantage of the buyer's tendency to value the good more after the buyer incorporates it in the status quo.Note that whether a transaction is framed as a loss or as a gain is very important to this calculation: would you rather get a $5 discount, or avoid a $5 surcharge? The same change in price framed differently has a significant effect on consumer behavior. Though traditional economists consider this ""endowment effect"" and all other effects of loss aversion to be completely irrational, that is why it is so important to the fields of marketing and behavioral finance. The effect of loss aversion in a marketing setting was demonstrated in a study of consumer reaction to price changes to insurance policies. The study found price increases had twice the effect on customer switching, compared to price decreases.A concept related to loss aversion is also differential framing of decision attributes, which can affect people's relative loss aversion.
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