@article{4d030d207807409084731baac513e6da,
title = "Do people think about absolute or relative price differences when choosing between substitute goods?",
abstract = "The article presents experimental evidence that shows that people often consider relative price differences in addition to absolute differences when choosing between substitute goods. Because the choice between substitute goods is a very common one, this is an important finding. The experiment uses scenarios in various consumption categories: hotel rooms, flights, and books. Subjects were either students or participants in an economics conference. The data allow to reject the hypothesis that people think only about relative price differences in favor of the hypothesis that people think about both relative and absolute price differences. Whether the price given to the subjects is that of the high-quality good or of the low-quality good makes a large difference, a result that is related to the endowment effect and the status quo bias. Implications of the results for business strategy and other areas are also discussed.",
keywords = "Behavioral decision making, Consumer behavior, Loss aversion, Product differentiation",
author = "Azar, {Ofer H.}",
note = "Funding Information: The author thanks Gadi Barlevy, Colin Camerer, James Dana, Stefano DellaVigna, Ernst Fehr, Daniel Friedman, David Laibson, George Loewenstein, Ulrike Malmendier, Robert Porter, William Rogerson, two anonymous referees and the Editor Gerrit Antonides for helpful conversations and comments. He is also grateful for comments made by participants in the Urrutia Elejalde Foundation – UNED fourth Winter Workshop, “Psychological Foundations of the Theory of Choice in Economics,” the SABE/IAREP 2004 conference, the Israeli Society for Cognitive Psychology 2004 Annual Conference, the International Association for Research in Economic Psychology (IAREP) 2005 annual conference, the Economic Science Association European Regional Meeting 2005, the 9th Econometric Society World Congress, and in seminars given at Northwestern University, The Hebrew University of Jerusalem, The Interdisciplinary Center Herzliya, The Technion – Israel Institute of Technology, University of Haifa, Tel Aviv University, Ben-Gurion University of the Negev, and Bar-Ilan University. The author also thanks James Dana and Rakesh Vohra for allowing him to run the experiment in the 2003 North American Summer Meetings of the Econometric Society in Evanston, and to Mark Witte for allowing him to run experiments in undergraduate courses he teaches. Financial support from the University Research Grants Committee at Northwestern University and the Center for Study of Industrial Organization in Northwestern University is gratefully acknowledged. ",
year = "2011",
month = jun,
day = "1",
doi = "10.1016/j.joep.2011.03.010",
language = "English",
volume = "32",
pages = "450--457",
journal = "Journal of Economic Psychology",
issn = "0167-4870",
publisher = "Elsevier B.V.",
number = "3",
}