Too expensive or too cheap? Effect of mismatch
DOI:
https://doi.org/10.14659/PJOEP.2014.06.02Keywords:
Prospect Theory, psycho-accounting function, mismatch effect, overestimation bias, underestimation biasAbstract
This article deals with the subjective mapping of prices. It was proposed that the relationship between the actual prices of market goods and their subjective representation can be expressed by using the psycho-accounting function postulated by Prospect Theory. 316 respondents were asked to intuitively estimate the prices for nine categories of market goods. The results confirmed the proposition. The power function was established for all categories of goods. The prices of relatively cheap goods were overestimated, which was labeled as overestimation bias. The prices of relatively expensive goods were underestimated, which was labeled as underestimation bias. The discrepancy between the psycho-accounting function and the isomorphic mapping generates the mismatch effect. The practical consequences that arise from the mismatch effect for both buyers and sellers are discussed.
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