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Behavioral Sticky Prices / Sergio Rebelo, Miguel Santana, Pedro Teles.
- Format:
- Book
- Author/Creator:
- Rebelo, Sergio.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w32214.
- NBER working paper series no. w32214
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2024.
- Summary:
- We study a model where households make decisions according to a dual-process framework widely used in cognitive psychology. System 1 uses effortless heuristics but is susceptible to biases and errors. System 2 uses mental effort to make more accurate decisions. Through their pricing behavior, monopolistic producers can influence whether households deploy Systems 1 or 2. The strategic use of this influence creates a new source of price inertia and provides a natural explanation for the "rockets and feathers" phenomenon: prices rise quickly when costs increase but fall slowly when costs fall. Our model implies that price stability is not optimal.
- Notes:
- Print version record
- March 2024.
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