Frieder Neunhoeffer - On subscription traps and pigeonholing (PhD pre-defense)
Titolo completo: "On subscription traps and pigeonholing - Transaction utility meets salience theory"
Abstract: Insurances profit by common probability overestimation of extreme events in the same way as subscription providers play on clients' overestimation regarding the utilization frequency of their services. The present paper analyzes this cognitive bias by means of an intertemporal choice experiment and finds evidence for violation of the dominance principle. When the choice menu includes a short subscription, explicitly implying one-time use, it is preferred over longer subscriptions luring with superior price-duration ratios. Instead, once the short subscription is extended, other simple comparative criteria come ostensibly to the fore - referred to pigeonholing - and fade rational evaluation into the background. The two-dimensional framework in most leading theories of choice under risk fails to explain the behavioral paradox. We argue that this stems from a third dimension: subscription length. Hinging on the conception of transaction utility (Thaler, 1985) we propose therefore an extension to salience theory (Bordalo, Gennaioli, and Shleifer, 2012) which captures the effect of pigeonholing.
Dipartimento di Economia (InSeminars)