Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098161 | Journal of Economic Dynamics and Control | 2016 | 28 Pages |
Abstract
How firms make their pricing decisions is a fundamental question of macroeconomics. We use a laboratory experiment to examine individual choices in a price updating task that provide insight into how well state dependent models reflect behavior. We find that in general subjects behave as if they recognize the importance of a state dependent pricing strategy, but they are unable to ascertain this threshold with precision and they also exhibit a substantial degree of time dependence. As a result, they update prices too frequently, and perform statistically significantly fewer real effort profit-generating tasks than theoretically optimal under full state dependence, which results in statistically significantly lower profits as well.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Justin D. LeBlanc, Andrea Civelli, Cary Deck, Klajdi Bregu,