Finite Brand Loyalty and Equilibrium Price Promotions

The extant literature on price promotions typically assumes that consumers loyal to a brand never switch to a competing brand, with Shilony (1977) and Raju et al (1990) being exceptions. Extending the Narasimhan (1988) model, we allow loyal consumers to hold finite brand loyalty. Our unique equilibrium splits into three types, depending upon configurations of consumer reservation utility, brand strength and switcher population. The type of equilibrium for high brand loyalty corresponds to the one in Narasimhan (1988). The remaining two types for intermediate and low brand loyalty demonstrate strikingly different properties. First, the strong brand has a higher price range and a higher regular price. Second, the strong brand has a higher (lower) average promotional depth than the weak brand when the switcher population is small (large). Third, both brands promote equally frequently when brand loyalty is relatively low. Therefore, this analysis hopefully provides a more complete picture about firmsâ promotional decisions for all possible levels of brand loyalty and switcher pupulation.Information Systems Working Papers Serie

Evidence and rationalization

Suppose that you have to take a test tomorrow but you do not want to study. Unfortunately you should study, since you care about passing and you expect to pass only if you study. Is there anything you can do to make it the case that you should not study? Is there any way for you to ‘rationalize’ slacking off? I suggest that such rationalization is impossible. Then I show that if evidential decision theory is true, rationalization is not only possible but sometimes advisable

Peer Effects in Risk Taking

This paper examines the effect of peers on individual risk taking. In the absence of informational motives, we investigate why social utility concerns may drive peer effects. We test for two main channels: utility from payoff differences and from conforming to the peer. We show experimentally that social utility generates substantial peer effects in risk taking. These are mainly explained by utility from payoff differences, in line with outcomebased social preferences. Contrary to standard assumptions, we show that estimated social preference parameters change significantly when peers make active choices, compared to when lotteries are randomly assigned to them

Dynamic club formation with coordination

We present a dynamic model of jurisdiction formation in a society of identical people. The process is described by a Markov chain that is defined by myopic optimization on the part of the players. We show that the process will converge to a Nash equilibrium club structure. Next, we allow for coordination between members of the same club,i.e. club members can form coalitions for one period and deviate jointly. We define a Nash club equilibrium (NCE) as a strategy configuration that is immune to such coalitional deviations. We show that, if one exists, this modified process will converge to a NCE configuration with probability one. Finally, we deal with the case where a NCE fails to exist due to indivisibility problems. When the population size is not an integer multiple of the optimal club size, there will be left over players who prevent the process from settling down. We define the concept of an approximate Nash club equilibrium (ANCE), which means that all but k players are playing a Nash club equilibrium, where k is defined by the minimal number of left over players. We show that the modified process converges to an ergodic set of states each of which is ANCE

Public Reaction to Mandated Language for U.S. Drinking Water Quality Reports

The author discusses results of a survey evaluating the mandated language for United States drinking water quality reports

A Game-Theoretic Analysis of the Off-Switch Game

The off-switch game is a game theoretic model of a highly intelligent robot interacting with a human. In the original paper by Hadfield-Menell et al. (2016), the analysis is not fully game-theoretic as the human is modelled as an irrational player, and the robot's best action is only calculated under unrealistic normality and soft-max assumptions. In this paper, we make the analysis fully game theoretic, by modelling the human as a rational player with a random utility function. As a consequence, we are able to easily calculate the robot's best action for arbitrary belief and irrationality assumptions

Earnings and Wealth Inequality and Income Taxation: Quantifying the Trade-Offs of Switching to a Proportional Income Tax in the U.S. Ohio

This papaer quantifies the steady-state aggregate, distributinal and mobility effects of switching the U.S. to a proportional income tax system. As a perriquisite to the analysi, we propose a theory of earnings and wealth inequality capable of accounting quantitatively for the key aggregate and inequality facts of the U. S. economy. This theory is based on saving to smooth uninsured household-specific risk, for dynastic households that also have some life-cycle characteristics. A suitable calibration of our model economy replicates the U.S. growth facts, earnings and wealth distributions, the progressivity of the tax system and the size of the U.S. government. We also solve a similar model economy in which the government livies a proportional income tax to finance the same flow of government expenditures and public transfers. Our finding show that in this class of model worlds a switch from the U.S. tax system to a proporcional tax system implies the following trade-offs, i.) it increases efficiency as measured by aggregate output by 4,4%, ii. ) it increases inequality as measured by the Gini index of the wealth distribution by 10.4%, and iv.) it changes by little the mobility between the different earnings and wealth groups

Competitive provision of tune-ins under common private information

Television (TV) stations forego millions of dollars of advertising revenues by airing tune-ins (preview advertisements) for their upcoming programs. In this paper, I analyze the equilibrium as well as welfare properties of tune-ins in a duopolistic TV market that lasts for two periods. Importantly, each TV station is fully informed about its own as well as its rival's program. Viewers receive information via tune-ins, if any, or alternatively by sampling a program for a few minutes (and switching across stations). I find that equilibrium tune-in decisions do not necessarily depend on TV stations' knowledge of their rival's program. In this case, the opportunity costs of tune-ins could be so high that a regime without any tune-ins may be socially better. However, when tune-ins depend on both of the upcoming programs, it is possible that they enhance welfare by helping viewers avoid some of the inefficient program sampling they would otherwise do in a regime without any tune-ins

Optimal funding and investment strategies in defined contribution pension plans under Epstein-Zin utility

A defined contribution pension plan allows consumption to be redistributed from the plan member’s working life to retirement in a manner that is consistent with the member’s personal preferences. The plan’s optimal funding and investment strategies therefore depend on the desired pattern of consumption over the lifetime of the member. We investigate these strategies under the assumption that the member has an Epstein-Zin utility function, which allows a separation between risk aversion and the elasticity of intertemporal substitution, and we also take into account the member’s human capital. We show that a stochastic lifestyling approach, with an initial high weight in equity-type investments and a gradual switch into bond-type investments as the retirement date approaches is an optimal investment strategy. In addition, the optimal contribution rate each year is not constant over the life of the plan but reflects trade-offs between the desire for current consumption, bequest and retirement savings motives at different stages in the life cycle, changes in human capital over the life cycle, and attitude to risk