Predicting Outcomes in a Sequence of Binary Events: Belief Updating and Gambler’s Fallacy Reasoning

Rao, K. Damodhar; Hastie, Reid

doi:10.2139/ssrn.3597264

Cited by 1 publication

(2 citation statements)

References 101 publications

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“…Intuitively, one could argue that a single price change may be regarded as an isolated event. This is inspired by recent research by Rao and Hastie (2020), who studied decision makers’ predictions about binary outcomes as a function of the number of viewed prior outcomes (i.e., the length of streaks). Participants in their studies view that a given outcome has occurred between two and seven times before the time of the prediction.…”

Section: Theoretical Developmentmentioning

confidence: 99%

“…People have been documented to exhibit a general likelihood to perceive a sequence of successive events as a streak (e.g., Albright 1993). Specifically, prior research suggests that people are likely to perceive a streak upon observing three similar events in succession (Carlson and Shu 2007; see also Rao and Hastie 2020). As discussed previously, research has shown that consumers’ predictions about the future generally tend to be extrapolative in nature.…”

Section: Theoretical Developmentmentioning

confidence: 99%

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The Impact of Historical Price Information on Purchase Deferral

Gunadi

Evangelidis

2022

Journal of Marketing Research

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In this paper, the authors examine how historical price information influences consumers’ decision to defer a purchase. They focus on two aspects of historical price information: the direction and the frequency of past price changes. The authors advance a theoretical framework which postulates that the interaction between these two factor shapes consumers’ decisions to buy now versus later. Controlling for the total magnitude of price changes, the authors propose that consumers are more likely to defer purchase when the price of the product has previously increased compared to when the price has decreased. Importantly, the authors hypothesize that this effect is more pronounced when consumers observe a single large change in price (e.g., an increase of $100 versus a decrease of $100) compared to when they observe multiple smaller changes that establish a trend (e.g., four decreases of $25 versus four increases of $25). The authors argue that these effects are driven by differences in consumers’ expectations about future prices. They test their predictions, as well as two moderators of the proposed effects—the monotonicity and the timing of price changes—in six well-powered pre-registered experimental studies (N = 5,713) using both hypothetical and actual purchases.

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Section: Theoretical Developmentmentioning

confidence: 99%