We present a cobweb model to explain price adjustment in a competitive market with homogeneous firms based on assumptions from Prospect Theory. Price changes are evaluated with respect to a psychological reference price which enters directly into the demand function. Accordingly, firms face a downward-sloping demand curve that is kinked at the consumers’ reference price. Differently from the traditional cobweb model, the economy is described by a discontinuous map. Without assuming specific non-linearities and keeping the essential underlying mechanics of the model intact, we find that the implementation of several features from Prospect Theory into our simple cobweb model may significantly influence the market dynamics. Behavioral parameters play an important role for the market stability by reducing fluctuations and by directly affecting consumers’ demand as well as production decisions.
Naimzada, A., Pecora, N., & Tramontana, F. (2019). A cobweb model with elements from prospect theory. JOURNAL OF EVOLUTIONARY ECONOMICS, 29(2), 763-778.
|Citazione:||Naimzada, A., Pecora, N., & Tramontana, F. (2019). A cobweb model with elements from prospect theory. JOURNAL OF EVOLUTIONARY ECONOMICS, 29(2), 763-778.|
|Tipo:||Articolo in rivista - Articolo scientifico|
|Carattere della pubblicazione:||Scientifica|
|Presenza di un coautore afferente ad Istituzioni straniere:||No|
|Titolo:||A cobweb model with elements from prospect theory|
|Autori:||Naimzada, A; Pecora, N; Tramontana, F|
|Data di pubblicazione:||2019|
|Rivista:||JOURNAL OF EVOLUTIONARY ECONOMICS|
|Digital Object Identifier (DOI):||http://dx.doi.org/10.1007/s00191-018-0595-z|
|Appare nelle tipologie:||01 - Articolo su rivista|