When retailing and Las Vegas meet: probabilistic free price promotions

A number of retailers offer gambling- or lottery-type price promotions with a chance to receive one’s entire purchase for free. Although these retailers seem to share the intuition that probabilistic free price promotions are attractive to consumers, it is unclear how they compare to traditional sure price promotions of equal expected monetary value. We compared these two risky and sure price promotions for planned purchases across six experiments in the field and in the laboratory. Together, we found that consumers are not only more likely to purchase a product promoted with a probabilistic free discount over the same product promoted with a sure discount but that they are also likely to purchase more of it. This preference seems to be primarily due to a diminishing sensitivity to the prices. In addition, we find that the zero price effect, transaction cost, and novelty considerations are likely not implicated.https://pubsonline.informs.org/doi/pdf/10.1287/mnsc.2015.2328Published versio

Essays in behavioral decision making

Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2007.Includes bibliographical references.Essay 1: Zero as a Special Price: the True Value of Free Products. When faced with a choice of selecting one of several available products (or possibly buying nothing), according to standard theoretical perspectives, people will choose the option with the highest cost-benefit difference. However, we propose that decisions about free (zero price) products differ, in that people do not simply subtract costs from benefits and perceive the benefits associated with free products as higher. We test this proposal by contrasting demand for two products across conditions that maintain the price difference between the goods, but vary the prices such that the cheaper good in the set is priced at either a low positive or zero price. In contrast with a standard cost-benefit perspective, in the zero price condition, dramatically more participants choose the cheaper option, whereas dramatically fewer participants choose the more expensive option. Thus, people appear to act as if zero pricing of a good not only decreases its cost but also adds to its benefits. After documenting this basic effect, we propose and test several psychological antecedents of the effect, including social norms, mapping difficulty, and affect. Affect emerges as the most likely account for the effect.Essay 2: Movies as a Mood Regulation Tool: Movie Watching Patterns Right After September 11. Is a sad person more, less or equally likely than a happy person to pursue a "happy" activity rather than an "unhappy" one (e.g. prefer a comedy to a drama)? Surprisingly, the literature offers theories and laboratory evidence in favor of all three possibilities. In this paper I attempt to resolve the puzzle by moving out of the lab and analyzing the changes in movie watching patterns following the tragic events of Sept. 11, 2001. Two data sets from the 7 weeks surrounding 9/11 are analyzed. One consists of US box office collections of top ten movies during the period. The other contains data on movie rentals in a rental store chain in Cambridge MA. The analysis suggests that the more private the mood-regulating decision is (rental vs. movie going), the more likely is the person to use the movie as a mood repair tool. When the decision is more public (movie going), the appropriateness issues induce more mood congruent behavior.Essay 3: Measuring Liking and Wanting. Recently neuroscientists have gathered a vast body of evidence that wanting (motivated preferences) and liking (non-motivated preferences) are not one and the same. We explore the possibility of measuring the two types of preferences uintrusiveley, in a behavioral lab. In particular we find that wanting and liking for viewing pictures of attractive people are not perfectly aligned and especially for men.by Kristina S. Shampanier.Ph.D