1. The impact of functional and social value on the price of goods
- Author
-
Koen Schoors, Aaron Bramson, Kevin Hoefman, and Jan Ryckebusch
- Subjects
PERCEPTIONS ,Social Values ,Economics ,DEMAND ,Economic Models ,PREFERENCE ,Ballistics ,lcsh:Medicine ,ART-MARKET ,Social Sciences ,050109 social psychology ,Control Systems ,Social value orientations ,Conspicuous consumption ,Systems Science ,Information asymmetry ,Sociology ,Econometrics ,Psychology ,lcsh:Science ,Preference (economics) ,Multidisciplinary ,Economic Competition ,Physics ,05 social sciences ,Linear model ,Commerce ,Classical Mechanics ,CHOICE ,Mathematical Economics ,Models, Economic ,Value (economics) ,Physical Sciences ,Engineering and Technology ,Games ,Research Article ,CONSPICUOUS CONSUMPTION ,Computer and Information Sciences ,Social Theory ,Supply and demand ,Business and Economics ,0502 economics and business ,Supply and Demand ,0501 psychology and cognitive sciences ,HEDONIC PRICES ,Asymmetric Information ,Product (category theory) ,Behavior ,ECONOMICS ,lcsh:R ,WINE ,Biology and Life Sciences ,Control Engineering ,Information Economics ,Economic Analysis ,MODEL ,Recreation ,lcsh:Q ,050211 marketing ,Mathematics - Abstract
According to hedonic pricing theory (HPT) market forces operate on individual characteristics of a good, and the price of a product is the aggregate of the price across those characteristics. The relationship between price and characteristics remains poorly understood because characteristic qualities are hard to quantify, people have varying levels of information about characteristics, and people have heterogeneous preferences over characteristics. By analyzing data from a large, market-driven virtual world we are able to test HPT, while largely avoiding these pitfalls. We find that a linear model with functional characteristics predicts the prices poorly, but a log-linear model performs quite well. Adding social characteristics to this log-linear model improves the predictions substantially. This work strongly supports HPT and demonstrates a "rational" calculus including social value.
- Published
- 2018