Previous empirical studies demonstrated that exposure to advertisements increases a consumers’ tendency to buy the promoted product. The standard interpretation of this empirical regularity is that advertising intensity is an element of the utility. Here we show that if consumers are risk-averse and advertising conveys information about product attributes, the empirical regularity can be explained even without assuming that utility is a function of ad intensity.
JEL Classification: D11, M37
Key words: risk aversion, informative advertising, persuasive effect.
STRAT
9 pages
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