1099-0771/asset/BDM_left.gif?v=1&s=aebe0f87b969088dc4dfb5604d4954236aab2a58)
Research Article
Overpredicting and Underprofiting in Pricing Decisions
Article first published online: 21 AUG 2011
DOI: 10.1002/bdm.746
Copyright © 2011 John Wiley & Sons, Ltd.
Additional Information
How to Cite
Shen, L., Hsee, C. K., Wu, Q. and Tsai, C. I. (2012), Overpredicting and Underprofiting in Pricing Decisions. J. Behav. Decis. Making, 25: 512–521. doi: 10.1002/bdm.746
Publication History
- Issue published online: 14 OCT 2012
- Article first published online: 21 AUG 2011
- Manuscript Revised: 20 APR 2011
- Manuscript Accepted: 20 APR 2011
- Manuscript Received: 16 AUG 2010
Funded by
- Center for Decision Research at Chicago Booth
- Templeton Foundation
- Shanghai Jiaotong University
- Abstract
- Article
- References
- Cited By
Keywords:
- evaluability;
- joint evaluation;
- preference reversal;
- prediction error
ABSTRACT
This research examines sellers' price-setting behavior and discovers a naturally occurring mismatch between sellers and buyers: Sellers who make a price decision often consider alternative prices and engage in the joint evaluation mode, whereas buyers who make a purchase decision see only the finally set price and are in the single evaluation mode. This mismatch in evaluation modes leads sellers to overpredict buyers' price sensitivity and underprice their products. However, these effects apply only to products unfamiliar to buyers and without salient reference prices and can be alleviated if sellers are encouraged to mimic single evaluation when making pricing decisions. These propositions are empirically tested and verified. Copyright © 2011 John Wiley & Sons, Ltd.