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conversations.value: What could be a title for a book about Professor, Emeritus, Amos with the genre: New, Used & Rental Textbooks, Social Sciences?
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conversations.value: A title for this book could be 'Choices, Values, and Frames'
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conversations.value: the first five paragraphs for this book
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conversations.value: Choices, Values, and Frames
  Eighty-seven percent of subjects chose Tom. Apparently, selling at a lower price ($44 versus $45) was perceived as constituting a better deal as long as inventory was acquired at an even lower price ($20 versus $22). Subjects felt justified in ignoring inflation and computed the relevant transaction based solely on nominal differences. This was further confirmed by variations on the problem, in which we asked subjects not only to indicate who they thought made a better deal, but also to estimate by how much. Profit estimates, in these cases, mostly amounted to plain nominal differences.
  It is worth pointing out that the mental accounting difficulties exhibited by our subjects arise in a variety of traditional accounting methods. Methods like FIFO (first in, first out) and LIFO (last in, first out) rely on historic prices, not replacement cost. It is also true that U.S. tax laws do not adjust properly for inflation. Churchill [1982] discusses the fact that many businesses continue selling the old stock at old prices, despite the fact that replacement costs have gone up with inflation. This could be fatal for small business that, after having sold the old stock at old prices, cannot afford to pay the replacement costs. Of course, even when businesses are aware of the accounting dangers, there is always the consumers' perception to contend with. To the extent that consumers suffer from money illusion, they may object to higher prices on items sold from old stocks.15
  Community standards of fairness appear to have a significant influence on economic behavior. Kahneman, Knetsch, and Thaler [1986] have presented a number of findings regarding people's perception of fairness, some of which bear directly on money illusion. Respondents in a telephone interview were asked to evaluate the fairness of a grocery store owner who has several months supply of peanut butter in stock, on the shelves and in the storeroom. The owner hears that the wholesale price of peanut butter has increased and immediately raises the price on the current stock of peanut butter. This vignette captures essentially the same accounting requirements as those described in the context of Problem 6, and addressed in Churchill [1982]. Unlike many of our subjects, the store owner in the present vignette sees the importance of selling his goods at their current value rather than their original price (plus markup). Seventy-nine percent of Kahneman, Knetsch, and Thaler's subjects, however, found this "unfair." To the extent that subjects are estimating profits based on nominal rather than real changes, the store owner's action would bring her an unwarranted higher (nominal) profit. She benefits from having inventories when the price rises, compared with if she had not had them. The fact that her real profit (from selling and replacing, not holding) remains unchanged does not justify her action in the eyes of the majority of subjects.
  Another vignette explored by Kahneman, Knetsch, and Thaler [1986] addresses the role of money illusion in judgments of fairness. In this vignette a company that is making a small profit is said to be located in a community experiencing a recession with substantial unemployment. Half the respondents were told that there is no inflation and the company decides to decrease wages and salaries by 7 percent. Other respondents were told that there is a 12 percent inflation and that the company decides to increase salaries by only 5 percent. Although the real income change is practically the same in the two versions, the percentage of respondents who judged the action of the company "unfair" was 62 percent in the case of the nominal cut but only 22 percent in the case of the nominal raise. Evidently, judgments of fairness are based largely on nominal rather than on real changes.16 Many people, for example, who would strongly object to a 1 percent cut in salary in times of no inflation, are less likely to complain when they get a 5 percent raise in times of 6 percent inflation. Based on extensive interviews, Bewley [1994] reports that businessmen are sensitive to the implications of nominal wage cuts for worker morale.
  The perception of fairness is expected to impinge on worker morale and, consequently, may have implications for actual job decisions. To explore this issue, we presented Princeton students with the hypothetical scenario below, followed by one of two questions: half the subjects received the "morale" question, the other half the "job decision" question:
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conversations.value: five more paragraphs
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conversations.value: In the first question, the series of outcomes unfold over a fairly short period (2 weeks) so that we would expect discounting to be relatively weak and the preference for improving sequences to be strong. Here, 90% of subjects opted for the improving sequence. In the second set of options, the absolute interval is much longer (26 weeks), reducing the integrity of the sequence. Here, we would expect discounting to have a greater impact relative to the preference for improvement. Indeed, a much smaller fraction of subjects (52%) chose the improving sequence given the long absolute delay. In the third pair, the sequence interval was once again reduced to 1 week, so we would anticipate a greater preference for the increasing sequences than found in the second pair. However, intuitively, we expected that the long delay prior to the beginning of the sequence would reduce its integrity to some degree. This may explain the slight reduction, relative to the first set of alternatives, in the fraction of subjects opting to get the unpleasant visit over with quickly.
  In addition to the desire for improvement over time, preferences also indicate a sensitivity to certain global or "gestalt" properties of sequences having to do with how evenly the good and bad outcomes are arranged over the total time interval. Unlike the question of positive versus negative time preference, which by now has received some attention, there have been few efforts to examine how people like to distribute outcomes over time. Important exceptions are two recent studies examining whether people like to experience two positive, negative, or mixed (positive and negative) events on the same or on different days. Applications of prospect theory imply that people should like to spread gains out across different days and to concentrate losses in a single day, and, although the first of these predictions is generally supported, the evidence for the latter is far more tenuous. Thaler and Johnson (1990) found that people generally expected to be happier when two gains (e.g., winning $25 in an office lottery and winning $50 in another) were separated by an interval but also expected to be less unhappy when two losses were separated. Thaler and Johnson argued that prior losses may sensitize people to subsequent losses, contrary to the prediction of prospect theory. Linville and Fischer (1991) likewise failed to observe a concentration of losses, although the tendency to do so was greater for small losses than for large ones. They explained this shift in terms a model of "coping capacity," which postulates that people have a limited psychological capacity to absorb losses and that they may wish to separate losses in time in order to replenish their coping resources. Thus, for both gains and losses, there does appear to be a preference for spreading outcomes out over time.
  Although these results are suggestive, their applicability to the types of sequences we were concerned with is limited. First, all of the choices in these studies involved only two outcomes. This made it possible to examine whether people like to concentrate or spread out outcomes but not whether they exhibit more complex patterns of preference (e.g., for certain types of patterns of outcomes over time). Second, the choices were all between experiencing outcomes at the same or different points in time. Such a design leaves unanswered, for those who prefer to separate outcomes, the question of how much of a gap is ideal.
  The central insight that we took from this research was that, when presented with more than one same-valence outcome, people generally like to spread outcomes over time rather than concentrating them. The following problem presented to 37 Yale University undergraduates (from Loewenstein, 1987) illustrates this desire for spread. Subjects were first given a choice between Options A and B then between Options C and D; they were instructed to ignore scheduling considerations. Percentages who chose each of the options are presented in the righthand column.
  Choosing between Options A and B, the majority of subjects preferred to postpone the fancy dinner until the second weekend, consistent with the widespread preference for improvement. However, the insertion of the common lobster dinner in Options C and D caused preference to shift slightly in favor of having the French dinner right away. This pattern violates additive separability (and any model given by Equation 1). Because the third period is identical for Options A and B and for C and D, separability implies that anyone who prefers A (B) should prefer C (D).
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conversations.value: the last five paragraphs
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conversations.value: Wertenbroch, K. (1996). Consumption self-control via purchase rationing. Working paper, Yale University. **[14]**
  Wright, J. (1997). The subjective representation of monetary differences: A constructive approach. Working paper, The University of Chicago. **[31]**
  Wu, G., & Gonzalez, R. (1998b). Dominance violations and event splitting. Unpublished manuscript, University of Chicago Graduate School of Business, Chicago, IL. **[6]**
  Wu, G., & Gonzalez, R. (1998c). Nonlinearity of decision weights in decision making under uncertainty, Unpublished manuscript, University of Chicago Graduate School of Business, Chicago, IL. **[6]**
  Yaari, M. E. (1984). Risk aversion without decreasing marginal utility. Report series in theoretical economics. London: London School of Economics. **[12]**
conversations.from: human
conversations.value: Delete the last sentence.
conversations.from: assistant
conversations.value: Wertenbroch, K. (1996). Consumption self-control via purchase rationing. Working paper, Yale University. **[14]**
  Wright, J. (1997). The subjective representation of monetary differences: A constructive approach. Working paper, The University of Chicago. **[31]**
  Wu, G., & Gonzalez, R. (1998b). Dominance violations and event splitting. Unpublished manuscript, University of Chicago Graduate School of Business, Chicago, IL. **[6]**
  Wu, G., & Gonzalez, R. (1998c). Nonlinearity of decision weights in decision making under uncertainty, Unpublished manuscript, University of Chicago Graduate School of Business, Chicago, IL. **[6]**
  Yaari, M. E. (1984). Risk aversion without decreasing marginal utility. Report series in theoretical economics. London: London School of Economics.