Georgios Angelis

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Georgios Angelis

AMSE
Price setting and price stickiness: A behavioral foundation of inaction bands
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IBD Salle 21

Îlot Bernard du Bois - Salle 21

AMU - AMSE
5-9 boulevard Maurice Bourdet
13001 Marseille

Date(s)
Jeudi 24 septembre 2020| 12:00 - 13:00
Contact(s)

Gaëtan Fournier : gaetan.fournier[at]univ-amu.fr
Yevgeny Tsodikovich : evgeny.tsodikovich[at]univ-amu.fr

Résumé

This paper proposes a model of price-setting based on behavioral biases as those introduced by Kahneman and Tversky’s (1979) Prospect Theory: i) people evaluate different aspects of their choices separately (narrow bracketing); ii) people evaluate prospective outcomes relative to a reference point (reference dependence); iii) prospective losses loom larger than prospective gains (loss aversion). The model predicts a pricing rule that involves an inaction region, and replicates two well-established patterns of the microdata: i) The distribution of price changes has both small and large values, and ii) the hazard function of price changes is downward-sloping initially and becomes constant thereafter.