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Opportunity Knocks: An Economic Analysis Of Television Advertisements

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Executive Summary

Certain aspects of advertising - especially on television - are not easily explained with conventional economic models. In particular, much of the imagery and repetitive thematic content seen in advertisements seem "Psychological" in nature, as opposed to "Informative." To understand the economic rationale for this phenomenon, the authors develop a theory of endogenous preferences in which information about threshold payoffs (which they interpret as being present over the course of human evolutionary history) induces sudden shifts in demand. They show that the resulting demand functions give firms incentive to provide threshold-related information.

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