Prospect Theory proposed that the (dis)utility of losses is always more than gains due to a phenomena called ‘loss-aversion’, a result obtained in multiple later studies over the years. However, some researchers found reversed or no loss-aversion for affective judgments of small monetary amounts but, those findings have been argued to stem from the way gains versus losses were measured. Thus, it was not clear whether loss-aversion does not show with affective judgments for smaller magnitudes, or it is a measurement error. This paper addresses the debate concerning loss-aversion (in the prospect theoretic sense) and judgments about the intensity of gains and losses. We measured affective prospective judgments for monetary amounts using measurement scales that have been argued to be suitable for measuring loss-aversion and hence rule out any explanations regarding measurement. Both in a gambling scenario and in the context of fluctuating prices, potential losses never loomed larger than gains for low magnitudes, indicating that it is not simply a measurement error. Moreover, for the same participant, loss aversion was observable at high magnitudes. Further, we show that loss-aversion disappears even for higher monetary values, if contextually an even larger anchor is provided. The results imply that Prospect Theory’s value function is contextually dependent on magnitudes.
Mukherjee, S., Sahay, A., Pammi, V. S. C., & Srinivasan, N. (2017). Is loss-aversion magnitude-dependent? Measuring prospective affective judgments regarding gains and losses. Judgment and Decision Making, 12(1), 81-89. [Download PDF]
A prosocial bonus is money given to people that needs to be spent on others. This article suggests a new way of implementing corporate social spending by involving the employees using ‘prosocial bonuses’. Such a policy can potentially serve a dual benefit of improving employee satisfaction and help companies reach the mandate for social spending. We examined predicted satisfaction from choosing between pro-self and prosocial bonuses when both options were presented simultaneously. Previous discussions stated that people predict higher satisfaction from spending on the self, compared to spending money on others. In contrast, we found that predicted satisfaction from opting to spend on the poor can be higher (experiment 1) or equal (experiment 2) to spending a bonus on oneself. We argue that this is possible when spending options are evaluated simultaneously. The major motivation for spending on the poor was to positively impact lives. A prosocial employee incentive policy could be built into corporate social responsibility programmes that benefit both the company and increase social welfare, especially in developing countries like India.
Mukherjee, S. & Sahay, A. (in press). Predicted satisfaction from simultaneous evaluation of prosocial and pro-self employee bonus schemes: Towards a new form of management strategy for corporate social spending. Psychological Studies . doi:10.1007/s12646-015-0349-z
The purpose of this paper is to study how consumers process price frames of product bundles (product plus surcharge) and discount offers to weigh contentious positions between the weighted-additive and the reference-dependent models. Further, some research suggests bundling, while others suggest partitioning to be a more effective pricing strategy. This research evaluated the relative influences of different price frames to examine which model is supported and what are the boundary conditions for price framing.
Two online studies were conducted on Indian adults who had prior experiences of online purchases. They were asked to judge attractiveness of bundles (product along with shipping surcharge). Discounts were shown on the product, the surcharge or on the overall bundle either as partitioned prices or as a bundle.
Across two studies on low- and high-priced products, discounts on shipping surcharge increased attractiveness of the bundle compared to a similar discount on the product or on the overall bundle, supporting the reference-dependent model. Further, for a low-priced product, bundling increased attractiveness, while for a high-priced product, partitioning was more attractive. More research is needed to examine whether these results translate to other kinds of products, surcharges or discount promotions and in different populations.
This research makes important contributions to theoretical and practical aspects of bundling and partitioned pricing research. It also adds much needed data about evaluation of product bundles with shipping surcharges among Indian customers.
Sahay, A., Mukherjee, S., & Dewani, P. P. (2015) “Price discount framings on product bundles with shipping surcharges in the Indian market: Examining the weighted-additive and reference-dependent models”, Journal of Indian Business Research, 7(1), 4 – 20 DOI – http://dx.doi.org/10.1108/JIBR-05-2014-0026