The Effects of Sensitization and Habituation in Durable Goods Markets

We develop a model to study the impact of changes in price sensitivity on the firm as it introduces multiple generations of a durable product where unit costs are a convex function of quality. We incorporate the psychological processes of sensitization and habituation into a model of discretionary purchasing of replacement products motivated by past experience. When price sensitivity decreases with each purchase (sensitization), the myopic firm offers a higher quality product at a much higher price with each generation. When price sensitivity increases with each purchase (habituation), the myopic firm engages in price skimming. When sensitization is followed by habituation, the myopic firm eventually provides higher quality than the market is willing to pay for, leading to a steep drop-off in sales and profits. The actions of the forward-looking firm depend on the discount rate. A firm with a low discount rate builds its customer base before offering a higher quality and higher priced product. In contrast, a firm with a high discount rate quickly increases price and quality following the same path to falling profits of the myopic firm. These results provide insight into the firm and consumer behaviors underlying the phenomenon of 'performance oversupply' identified in the innovation literature

Economic Consequences of Mispredicting Utility

A framework is proposed for organizing phenomena related to the (mis)prediction of utility, in particular neglecting adaptation. A categorization is introduced that accounts for asymmetries in misprediction. In decision-making, goods and activities satisfying extrinsic desires are more salient than those serving intrinsic needs. Accordingly, there is an overconsumption of the former compared to the latter. The theoretical analysis is consistent with econometric evidence on commuting choice using data on subjective well-being. People show substantial adaptation to a higher labor income but not to commuting. This may account for the finding that people are not compensated for the burden of commuting.adaptation, extrinsic/intrinsic attributes, individual decision-making, misprediction, subjective well-being, time allocation

Beyond the shadows of utility: evolutionary consumer theory and the rise of modern tourism

A generic feature of advanced economic development is the rapid emergence of what Konrad Lorenz dubbed the ‘Pleasure Economy’ – the rising percentage of household income spent on leisure consumption (Lorenz 1970). To explain such long run shifts in consumption, it is necessary to do away with the shadow that modern utility theory casts on the nature of consumer tastes and to investigate how these have indeed evolved in the face of a continuously expanding and increasingly heterogeneous set of consumption opportunities. Starting with the basic conjecture that the expansion of consumption is shaped by a set of biologically evolved behavioral predispositions which are inherent in the consumer’s genetic endowment (Witt 2001), we examine the historical emergence of certain types of tourism to show how the interplay between these ‘wants’ and the act of recreational travel may account for the explosive growth of modern tourism activity

Sustaining Wildlife with Recreation on Public Lands: A Synthesis of Research Findings, Management Practices, and Research Needs

Humans and wildlife interact in multifaceted ways on public lands with both positive and negative outcomes for each group. When managed well, wildlife-based tourism and other forms of recreation can benefit conservation goals. Public lands planners and managers often must decide how to best manage recreational activities and wildlife habitats that overlap spatially and temporally. We conducted an extensive literature review and categorized recreational activity into five types based on the use of motorized equipment, season, and location (terrestrial vs. aquatic), expanding on findings summarized in prior reviews. Our findings provide a reference for public lands planners and managers who need information about how wildlife species respond to recreational activities and to associated changes in their habitats. We also describe management principles gleaned from the literature and outline priority research and administrative study areas to advance our understanding of recreation-wildlife interactions

The smartphone bubble that popped – a smarter techno savvy consumer.

Master’s Degree. University of KwaZulu-Natal, Durban.Abstract This research investigated a shift in consumer behaviour due to the durability of smartphones, which has resulted in a smarter more techno-savvy consumer and ultimately a pop in the smartphone bubble. This shift emerged as power companies, such as Apple and Samsung, reported a decline in their smartphone sales as product introduction strategies failed due to a lack of innovation. This research looked at the role that brand preference, word of mouth (friends and family), product extensions, and paid vs. freemium applications play in a consumer‟s ultimate choice of purchasing a new smartphone. A quantitative study was conducted whereby a questionnaire was used to collect data from respondents at North Beach, Durban. The questionnaire consisted of two sections; the first section was used to collect demographic data and section two was used to collect data related to the objectives of the study. Section two was broken down into the following five categories: consumer behaviour, downloadable applications to add functionality, branded products vs. cheaper brands, word of mouth, and product extensions. A questionnaire based on a 5 point Likert scale was developed to collect data for this study. Respondents were asked to respond to statements by selecting any of the following options: Strongly agree, Agree, Uncertain, Disagree, or Strongly disagree. The data collected was then analysed in the form of both descriptive and inferential statistics by using the statistical software programs SPSS and Excel. These results were then used to prove the research questions and hypotheses of this study. The Smartphone Appreciation Model was specifically created for this research to prove that the smartphone bubble had popped. This model is based on a combination of factors, including product durability, word of mouth, brand preference, product extensions, freemium vs. paid application downloads to add functionality to a smartphone, and lack of innovation. Based on this model all these factors needed to fall within the area of acceptance to prove that a pop in the smartphone bubble had occurred. When hypothesis testing was conducted the results for each factor mentioned fell within the area of acceptance, therefore indicating that the smartphone bubble had popped.Abstract available in the PDF

Essays in Behavioral and Experimental Economics

This dissertation consists of three essays examining the implications of human psychology for economic behavior and market outcomes

Opioid and stimulant use among a sample of corrections-involved drug users : seeking an understanding of high-risk drug decisions within a system of constraint.

In the United States, high-risk drug use remains a significant social problem. Opioids and stimulants are two drug classes that have contributed to substantial recent increases in drug-related arrests, overdose, and mortality. Kentucky has been particularly devastated by high rates of opioid and stimulant use. Opioid and stimulant effects, while highly rewarding, can result in adverse consequences. Still, some people choose to use these drugs, and choose to continue using even after experiencing adverse consequences, such as incarceration. The aim of this study was to explore high-risk drug use among a sample of corrections-involved adults in Kentucky and to identify endogenous and exogenous factors with the potential to have influenced drug-related decision-making prior and subsequent to incarceration. Attention was paid to understanding concomitant opioid and stimulant use and heroin use. Survey data collected as part of an ongoing corrections-based substance use treatment program outcomes study were examined. The final sample (N=1,563) included adults released into Kentucky counties between 2012-2017. Non-parametric statistical tests and multinomial logistic regression were used to identify factors associated with opioid, stimulant, and concomitant use; binary logistic regression was used to identify factors associated with heroin use. Results indicate that opioid and stimulant use was endemic in this sample, though rates of use subsequent to incarceration were lower than pre-incarceration rates. During the 30-day period prior to incarceration, 29.0% of participants reported concomitant use, 28.5% reported opioid use, and 18.0% reported stimulant use. During the one-year post-release period, 11.9% of participants reported concomitant use, 12.5% reported opioid use, and 8.3% reported stimulant use. During this post-release period, 10.7% reported heroin use. Concomitant and heroin use positively correlated with many factors with the potential to adversely influence cognition and constrain choice. Similar relationships between many of these factors and outcomes involving other drug or no drug use were not observed. Behavioral economics, a molar view of choice and behavior, was used to conceptualize how factors in the lives of participants had the potential to influence and constrain decision-making in respect to high-risk drugs. Findings are discussed in light of how they may inform future research, policy, and practice

Understanding consumer behaviour in the less developed countries : an empirical investigation of brand loyalty in Zambia

The objectives of this study are to contribute to the understanding of consumer behaviour, and to investigate the existence of brand loyalty in the less developed countries. The study attempts to fill the gap in literature on consumer behaviour and consumer characteristics in the less developed countries. The significance of the study is that while the existing studies focus on Latin American markets, it investigates consumer behaviour in Africa: Zambia. A further contribution lies in its attempts to understand consumer behaviour in markets where there is a common notion that marketing is not important because the existence of shortages creates demand. This study regards such attitudes as myopic because marketing should be understood as more than a demand creating tool. It should be viewed as a discpline that can enable a manager to match organizational capabilities and resources to the needs of a society. Moreover, at the micro level, companies are in competition for the occupation of the largest segment in the consumers mind. The need for marketing during shortages is in conformity with Kotlers argument that: "Marketing is as critical a strategic concept and an operating philosophy during shortages as it is during surpluses. The seller (Marketer] who abandons the marketing mode of thinking during shortages is playing Russian roulette with his market franchise. He is risking long-term marriage to a set of customers for the temporary charms of a seductress." (Quoted in Nekvasil, 1975, p.57].Hence, studying brand loyalty and the factors related to it has particular relevance in the less developed countries. The results of a consumer survey conducted among 1289 respondents in Zambia reveals that women, who were mostly involved in the purchase of the products, were very aware of brands on the market, used informal (personal sources] of information, identified brands by name and as expected, the frequency of purchases were low and quantities bought quite large, reflecting the product shortage situation. The cross-tabulations and log-linear analysis further indicated that brand loyal consumers tended to be mostly men, educated, from middle and high income classes, store loyal, heavy users, not price sensitive, influenced by family and friends, who lived in urban areas where distribution is extensive and many brands available. However, some interbrand differences were evident. These results suggest a profile of brand loyal consumers, and this can be used to segment the market for frequently purchased products. More significantly, the possibility of market segmentation would indicate appropriate marketing and advertising strategies for companies selling these products in the less developed countries