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Loss Aversion in Post-Sale Purchases of Consumer Products and Their Substitutes

Author

Listed:
  • Debajyoti Ray
  • Matthew Shum
  • Colin F. Camerer

Abstract

This paper considers the measurement of consumer loss aversion in product markets. We introduce a test based on a "substitution effect," focusing on how the end of a sale affects sales not of the good itself, but a substitute good. Such an effect cannot be easily confounded with consumer stockpiling. Using a unique dataset from an online hardware retailer, we find evidence consistent with consumer loss aversion. Moreover, we find that less experienced consumers suffer a more prominent loss aversion bias compared to more experienced consumers.

Suggested Citation

  • Debajyoti Ray & Matthew Shum & Colin F. Camerer, 2015. "Loss Aversion in Post-Sale Purchases of Consumer Products and Their Substitutes," American Economic Review, American Economic Association, vol. 105(5), pages 376-380, May.
    • Handle: RePEc:aea:aecrev:v:105:y:2015:i:5:p:376-80
    Note: DOI: 10.1257/aer.p20151037
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    Citations

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    Cited by:

    1. Deng, Yiting & Staelin, Richard & Wang, Wei & Boulding, William, 2018. "Consumer sophistication, word-of-mouth and “False” promotions," Journal of Economic Behavior & Organization, Elsevier, vol. 152(C), pages 98-123.
    2. Arnoud V. den Boer & N. Bora Keskin, 2022. "Dynamic Pricing with Demand Learning and Reference Effects," Management Science, INFORMS, vol. 68(10), pages 7112-7130, October.
    3. Huang, Jiaqi & Antonides, Gerrit & Nie, Fengying, 2022. "Asymmetric price effects on food demand of rural households: Panel evidence from China," Journal of Economic Psychology, Elsevier, vol. 89(C).
    4. Helen Bao & Chunming Meng, 2017. "Loss Aversion and Residential Property Development Decisions in China: A Semi-Parametric Estimation," ERES eres2017_156, European Real Estate Society (ERES).
    5. Guofang Huang & Haiyan Liu, 2021. "Estimating expectations-based reference-price effects in the used-car retail market," Quantitative Marketing and Economics (QME), Springer, vol. 19(3), pages 457-503, December.
    6. Bao, Helen X. H. & Meng, Charlotte Chunming, 2017. "Loss Aversion and Residential Property Development Decisions in the People’s Republic of China: A Semi-Parametric Estimation," ADBI Working Papers 640, Asian Development Bank Institute.
    7. Korhonen, Pekka J. & Wallenius, Jyrki & Genc, Tolga & Xu, Peng, 2021. "On rational behavior in multi-attribute riskless choice," European Journal of Operational Research, Elsevier, vol. 288(1), pages 331-342.
    8. Zhu, Jialiang & Wang, Zeyu, 2022. "Loss aversion in post-sale purchases of two close substitutes," Economics Letters, Elsevier, vol. 218(C).
    9. Glenn W. Harrison & J. Todd Swarthout, 2016. "Cumulative Prospect Theory in the Laboratory: A Reconsideration," Experimental Economics Center Working Paper Series 2016-04, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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