Book Chapter

The Citizen's Judgements of Prices and Inflation

Bonini, Nicolao, Missier, Fabio Del, Ranyard, Rob, Pietroni, Davide

2017

Overview

This chapter provides an introduction to the economic psychology of price and inflation judgements, focusing on the main findings and the more relevant psychological theories. It discusses the process of price evaluation, and focuses on theories centred on the construct of a reference price, defined as a benchmark price used in relative evaluation processes. The chapter then briefly considers how prices are evaluated according to three psychological theories (prospect theory, decision by sampling, and norm theory), which provide further insight into evaluation processes and their effects. It further takes into account the factors affecting retrieval of reference prices and briefly mentions other aspects relevant to price evaluation. People's perceptions of past and expectations of future inflation have been found to differ from official statistics, often substantially. It is important to understand how this occurs, since perceived inflation influences expected inflation, which in turn affects economic behaviour such as wage negotiations, borrowing, saving and spending.

• Publisher: John Wiley & Sons, Ltd
• Subject: decision by sampling / economic behaviour / economic decisions / economic psychology / inflation / inflation perceptions / judgement / norm theory / price evaluation / prices / prospect theory / Psychology / psykologi
• ISBN: 111892634X, 9781118926345