Disappointment-averse firms produce less, impacting optimal building heights in Uruguay.
The article explores how firms make decisions when prices are uncertain. They looked at different models of how firms react to disappointment and found that firms that are averse to disappointment tend to produce less than those that are just risk-averse. The optimal output levels for disappointment-averse firms decrease as the level of disappointment increases. The study also found that the optimal outputs vary depending on the specific model used. In a real-world example, the models were used to determine the best heights for new buildings in Punta del Este, Uruguay, and the predictions closely matched the actual building heights.