Incorporating Reference Price Effects into a Theory of Consumer Choice
Abstract
Although there has been a good deal of research on incorporating the effects of reference price formation into empirical models of consumer buying behavior, little formal theoretical work had been undertaken to date. This paper incorporates reference price effects into the traditional economic theory of consumer choice, and examines the effects of reference price formation on the results of the traditional theory, its marketing implications, and the implications for empirical models which examine the effects of reference price formation on actual consumer behavior. Several implications of the theoretical model are empirically tested using weekly retail egg sales data from Southern California. This analysis indicates that reference price formation does have significant effects on consumer behavior. Furthermore, these effects are asymmetric with consumers two and a half times more responsive to egg price increases that are in excess of the reference price than they are to comparable egg price decreases.
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Real-world data show loss-averse behavior in stock markets, pricing and purchasing of consumables and condominiums, and choice of work hours by cabdrivers.
“This work has been supported by analyses of real world data that show similar behavior in, among other situations, stock markets (26–28), the pricing and purchasing of consumables (29, 30) and condominiums (31), and the choice of work hours by cabdrivers (32).”
From Thinking like a trader selectively reduces individuals' loss aversion (2009) · cites this paper as [29]
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Reference Price Research: Review and Propositions
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Thinking like a trader selectively reduces individuals' loss aversion
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- Authors
- Putler, D. S.
- Affiliations
- Economic Research Service (US)
- Corresponding author
- Putler, Daniel S.
- Venue
- Marketing Science
- Published
- 1992-08
- Volume
- 11
- Issue
- 3
- Pages
- 287-309
- ISSN
- 0732-2399 (ISSN-L)
- 1526-548X
- OpenAlex
- W2039306680
- Cited by
- 370
- References
- 26
- Citations by year
- 2026: 8 · 2025: 14 · 2024: 25 · 2023: 8 · 2022: 19 · 2021: 17 · 2020: 9 · 2019: 16 · 2018: 16 · 2017: 16 · 2016: 9 · 2015: 21 · 2014: 20 · 2013: 17 · 2012: 20
- FWCI
- 14.11
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Marketing Science (publishedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Marketing › Consumer Market Behavior and Pricing
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economics of Agriculture and Food Markets
- Keywords
- reference price effect, consumer theory, consumer buying behavior, price asymmetry
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