Raj Chetty: prediction

Transcript context

…Not here in Silicon Valley, at least. Yeah. But it could be menu cost more broadly written in the sense of it takes time to think about optimal pricing strategies and re-optimizing that problem every single day. Devoting labor to that might not be the efficient thing to do. Could it be about salience? That’s an interesting question. I think perhaps, although I would think the salience model would push you towards wanting to change prices more in some ways, because if consumers aren’t paying attention, in essence you’re facing an inelastic demand curve in the short run, and so you might want to catch them by surprise and occasionally have higher prices or lower prices. I actually think sales have a lot to do with salience, if you think about all those tags you see at the store. It’s not so much the dollar price reduction. It’s the fact that the thing says it’s on sale, I think, that attracts people’s attention and makes them want to buy. I always tell my wife to ignore this if something’s always on sale.…

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