This paper reformulates and simplifies a recent model by Heidhues and Kőszegi (The impact of consumer loss aversion on pricing, Mimeo, <CitationRef CitationID="CR5">2005</CitationRef>), which in turn is based on a behavioral model due to Kőszegi and Rabin (Q J Econ 121:1133–1166, <CitationRef CitationID="CR11">2006</CitationRef>). The model analyzes optimal pricing when...</citationref></citationref>

<Para ID="Par1">We consider a model in which each agent in a population chooses one of two options. Each agent does not know what the available options are and can choose an option only after observing another agent who has already chosen that option. In addition, the agents’ preferences over the two options...</para>