We present a new partial equilibrium theory of price adjustment, based on consumer loss aversion. In line with prospect theory, the consumers’ perceived utility losses from price increases are weighted more heavily than the perceived utility gains...

We present a theory of nominal wage adjustment based on worker loss aversion, along the lines of prospect theory. Wage changes are evaluated relative to an endogenous reference wage, which depends on the workers’ rational wage expectations from the...

We present a new partial equilibrium theory of price adjustment, based on consumer loss aversion. In line with prospect theory, the consumers’ perceived utility losses from price increases are weighted more heavily than the perceived utility gains...