Creating Attachment Through Advertising: Loss Aversion and Pre-Purchase Information
CER-ETH – Center of Economic Research at ETH Zurich Working Paper No. 13/177
50 Pages Posted: 29 Mar 2013
Date Written: March 22, 2013
Abstract
Complementing the existing literature on anchoring effects and loss aversion, we analyze how firms can influence loss-averse consumers’ willingness to pay by product information in the form of informative advertising rather than by prices. We find that consumers’ willingness to pay is greatest when only partial information about the product — i.e. only a fraction of product attributes — is disclosed, and that partial information disclosure is the optimal mode of advertising for a monopolistic firm. This causes the consumers’ realized product valuation to diverge from their intrinsic product valuation, which leads to a reduction of consumer surplus. Consequently, transparency policies can help to protect consumers.
Keywords: Advertising, Loss Aversion, Information Disclosure
JEL Classification: D83, L41, M37
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Vincent P. Crawford and Juanjuan Meng
-
Reference Points and Effort Provision
By Johannes Abeler, Armin Falk, ...
-
Reference Points and Effort Provision
By Johannes Abeler, Armin Falk, ...
-
Reference Points and Effort Provision
By Johannes Abeler, Armin Falk, ...
-
A Structural Analysis of Disappointment Aversion in a Real Effort Competition
By David Gill and Victoria L. Prowse
-
A Structural Analysis of Disappointment Aversion in a Real Effort Competition
By David Gill and Victoria L. Prowse
-
Fairness and Desert in Tournaments
By David Gill and Rebecca Stone
-
Binary Payment Schemes: Moral Hazard and Loss Aversion
By Fabian Herweg, Daniel Müller, ...
-
Is the Endowment Effect a Reference Effect?
By Ori Heffetz and John A. List