Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics

Ho, Teck H.; Lim, Noah; Camerer, Colin F.

doi:10.1509/jmkr.43.3.307

Cited by 210 publications

(135 citation statements)

References 130 publications

(207 reference statements)

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“…For instance, managers may wish to consider an individual's ability or behavioral factors when determining a wage contract to offer. Attempts to take advantage of findings from behavioral economics in management and public policy have become popular in 3 recent years (e.g., Camerer et al, 2003;Ho et al, 2006;Madrian, 2014). A key example is loss aversion, which predicts that workers will evaluate gains and losses relative to a reference point, and will value losses more than gains (Kahneman and Tversky, 1979).…”

Section: Introductionmentioning

confidence: 99%

Loss aversion and the quantity–quality tradeoff

2017

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Firms face an optimization problem that requires a maximal quantity output given a quality constraint. But how do firms incentivize quantity and quality to meet these dual goals, and what role do behavioral factors such as loss aversion play in the tradeoffs workers face? We address these issues with a theoretical model and an experiment in which participants are paid for both quantity and quality of a real effort task. Consistent with the basic economic theory, higher quality incentives encourage participants to shift their attention from quantity to quality. However, we also find that loss averse subjects shift their attention from quality to quantity to a greater degree when quality is weakly incentivized. These results can inform managers of the most appropriate ways to structure contracts.JEL Classifications: D24, J24, J31, J41

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Section: Introductionmentioning

confidence: 99%

Loss aversion and the quantity–quality tradeoff

2017

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“…2 While most of these fi ndings were useful in many fi elds of marketing research, they were particularly fruitful for research in the fi eld of behavioural pricing. 3 -5 Among the important fi ndings, this rich body of research has demonstrated that consumers from all over the world have low levels of price recall and awareness for many products, for example, clothes, durable goods or food.…”

Section: Introductionmentioning

confidence: 99%

On the validity of price knowledge measurements via self-assessment scales: Two studies in retailing

Eberhardt

Kenning²,

Schneider

2009

J Target Meas Anal Mark

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Price knowledge as a psychological construct has been one of the top behavioural pricing themes in the last four decades. Because the price of a product has a major infl uence on the buying decision, it is natural to focus on this issue. However, the broad range of aims of these studies, and the range of measurement methods for the construct, have produced differences in fi ndings. Accordingly, in order to enable the practice to use at least some fi ndings on price knowledge for marketing purposes, there is a need for more methodological research. In response to this need, our study aimed to prove the validity of the scales that are frequently used to measure price knowledge. We organised two studies employing two times two within the subjects ' factorial design. One factor addresses the method for measuring price knowledge (that is, self-assessment versus percentage absolute deviation (PAD)), and the other factor addresses the retail branch of our study (food versus clothes). In the food sample, we found two signifi cant correlations between self-assessment and PAD. In the clothing sample, we found no such correlations. We conclude that care has to be taken when self-assessment scales are used to measure price knowledge.

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“…The results offer important insights on potential tactics that firms can utilize to leverage these behavioral issues to improve profitability. Several researchers such as Narasimhan et al (2005) and Ho et al (2006) advocate that more studies that examine the joint impacts of multiple behavioral factors should be encouraged to advance consumer behavior research. The present paper takes a step along this direction.…”

Section: Literature Reviewmentioning

confidence: 99%

Markdown or Everyday Low Price? The Role of Behavioral Motives

2016

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We study a seller's optimal pricing and inventory strategies when behavioral (non-pecuniary) motives affect consumers' purchase decisions. In particular, the seller chooses between two pricing strategies, markdown or everydaylow-price, and determines the optimal prices and inventory level at the beginning of a two-period selling season. Two salient behavioral motives that impact consumers' purchase decisions and the seller's optimal strategies are anticipated regret and misperception of product availability. Regret arises when a consumer initially chooses to wait but encounters stockout later, or when the consumer buys the product at the high price but realizes that the product is still available at the markdown price. In addition, consumers often perceive the product's future availability to be different than its actual availability. We determine and quantify that both regret and availability misperception have significant operational and profit implications for the seller. For example, ignoring these behavioral factors can result in up to 10% profit losses. We contrast the roles of consumers' strategic (pecuniary) motives with their behavioral (non-pecuniary) motives in affecting purchase, pricing, and inventory decisions. The presence of the behavioral motives reinstates the profitability of markdown over everyday-low-price, in sharp contrast to prior studies of only strategic motives which suggest the contrary. We characterize how and why strategic versus behavioral motives affect decisions in distinctive manners. In doing so, this paper also introduces and determines the behavioral benefits of pricing in leveraging consumers' behavioral regularities. We advocate that tactics which may intensify consumers' misperception of availability, such as intentionally disclosing low inventory levels, can have a far-reaching impact on improving the seller's profit.*

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Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics

Cited by 210 publications

References 130 publications

Loss aversion and the quantity–quality tradeoff

Loss aversion and the quantity–quality tradeoff

On the validity of price knowledge measurements via self-assessment scales: Two studies in retailing

Markdown or Everyday Low Price? The Role of Behavioral Motives

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