The law of demand and loss of confidence effect: An experimental study
Date
2019
Authors
Mazurek, Jiri
Pérez-Rico, Cristina
Fernández-García, Carlos
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
URL external
item.page.doi
Abstract
The aim of this article is to examine the possibility that a market demand function (curve) might not be monotonically
decreasing in its entire domain according to the consumer theory neoclassical as assumed by the law of
demand (for normal goods). This may happen due to limited rationality of (some) consumers and the anchor price
effect. When a price of a good decreases to some point, the amount demanded might stops increasing due to the
loss of confidence effect: consumers’ unwillingness to buy a too cheap product. The existence of this effect was
examined via questionnaire on a sample of 377 undergraduate university students from the Czech Republic,
Ecuador and Spain. The main result of this experimental study is that the loss of confidence effect appeared at all
three locations, which indicates that the law of demand may not be valid in its entire domain. Furthermore, the
results of this study imply that a significant percentage of people make decisions of limited rationality even when
facing a very simple task. In addition, statistically significant difference in rational behavior with respect to
gender was found.
Description
Citation
Mazurek, J., García, C. F., & Rico, C. P. (2019). The law of demand and the loss of confidence effect: An experimental study. Heliyon, 5(11).
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