The marketplace, along with its price system, is the single most important institution in a western-style free enterprise economy. The ability of prices to adjust to changes in supply and demand conditions enables the market to function efficiently and lies behind the magical invisible hand...

The price system, the adjustment of prices to changes in market conditions, is the primary mechanism by which markets function and by which the three most basic questions get answered: what to produce, how much to produce and for whom to produce. To the behaviour of price and price system,...

Theoretical models point at various channels of the impact of inflation on corporate investment. This article attempts to answer the question what are the direction and strength of this possible impact examining the relationship between corporate investment and inflation on the sample of 21 OECD...

This introductory essay briefly summarizes the eleven empirical studies of price setting and price adjustment that are included in this special issue. The studies, which use data from several European countries, were conducted as part of the European Central Bank’s Inflation Persistence Network.

If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices remain sticky. We study a situation where producers adjust the quantity (per...

This paper suggests a behavioral, preference-based definition of loss aversion for decision under risk. This definition is based on the initial intuition of Markowitz [30] and Kahneman and Tversky [19] that most individuals dislike symmetric bets, and that the aversion to such bets increases...

Empirical evidence from sequential auctions shows that prices of identical goods tend to decline between rounds. In this paper, I show how expectations-based reference-dependent preferences and loss aversion can rationalize this phenomenon. I analyze two-round sealed-bid auctions with symmetric...

Willingness to pay (WTP) elicitations suffer from various methodological problems. This paper tests a recently proposed alternative approach to value WTP for health, making use of trade-offs between income and lifetime or quality of life. We apply three experimental elicitation procedures and...

This paper reformulates and simplifies a recent model by Heidhues and Koszegi (2005), which in turn is based on a behavioral model due to Koszegi and Rabin (2006). The model analyzes optimal pricing when consumers are loss averse in the sense that an unexpected price hike lowers their...

Auctioneers who have an indivisible object for sale and believe that bidders are risk neutral can find the recipe for an optimal auction in Myerson (1981); auctioneers who believe that bidders are loss averse can find it here: An optimal auction is an all pay auction with minimum bid, and any...