Creating Attachment through Advertising: Loss Aversion and Pre–Purchase Information

Heiko Karle

No 13/177, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: Complementing the existing literature on anchoring effects and loss aversion, we analyze how firms can influence loss–averse consumers’ willingness to pay by product information in the form of informative advertising rather than by prices. We find that consumers’ willingness to pay is greatest when only partial information about the product—i.e. only a fraction of product attributes—is disclosed, and that partial information disclosure is the optimal mode of advertising for a monopolistic firm. This causes the consumers’ realized product valuation to diverge from their intrinsic product valuation, which leads to a reduction of consumer surplus. Consequently, transparency policies can help to protect consumers.

Keywords: Advertising; Loss Aversion; Information Disclosure. (search for similar items in EconPapers)
JEL-codes: D83 L41 M37 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2013-03
New Economics Papers: this item is included in nep-cbe, nep-com, nep-cta, nep-cwa, nep-mic, nep-mkt and nep-upt
References: View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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