Loss aversion and a kinked demand curve: evidence from contingent behaviour analysis of seafood consumers

Abstract

Several laboratory experiments and market-based research in the fields of psychology, economics and marketing have provided increasing evidence of individuals exhibiting loss aversion tendencies, with decision-making based on a pre-existing reference point. This creates an S-shaped value function and associated kink in the demand curve. This research provides contingent behaviour analysis of 1790 seafood consumers across the Mid-Atlantic region. A survey is specifically designed to elicit respondents' change in consumption from their reference point when faced with price variations in the seafood market. Results from a Tobit model with random effects provide empirical support of consumers behaving in a manner consistent with loss aversion theory, revealing a kinked demand curve for seafood meals at the respondents' reference point.

Notes

¹These questions relate to other research not relevant to this discussion. For more information, please contact the author.

²The three additional equations provide a total of five equations to be estimated in the model.

³The coefficients on major-kill, minor-kill, brochure, brochure&insert, inspection and price for inspection are demand shifters relating to information effects not discussed herein. For an explanation of these coefficients, contact the author.