Citation
Discussion Paper Details
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Full Details
Title: Loss Aversion and Consumption Choice: Theory and Experimental Evidence
Author(s): Heiko Karle, Georg Kirchsteiger and Martin Peitz
Publication Date: October 2012
Keyword(s): Contextual Reference Points, Loss Aversion and Reference-Dependent Utility
Programme Area(s): Industrial Organization
Abstract: In this paper 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. We make use of the fact that participants diff er in their reported taste difference between the two sandwiches and the degree of loss aversion which we measure separately. We find that more loss-averse participants are more likely to opt for the cheaper sandwich provided that their reported taste difference is below some threshold, confirming the model?s predictions.
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Bibliographic Reference
Karle, H, Kirchsteiger, G and Peitz, M. 2012. 'Loss Aversion and Consumption Choice: Theory and Experimental Evidence'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9183