Summary

Making time-limited offers is a common retail pricing strategy. Economic theory implies that such offers inhibit price search, making markets less competitive. We investigate experimentally whether this effect is intensified by behavioural factors – specifically, feedback-conditional regret, reduced decision quality due to time constraints, and aversion to small-scale risk. Participants choose from a sequence of alternative price offers, one of which might be time-limited, under various conditions. These price search problems were matched with equivalent, time-unconstrained binary choices between lotteries. We find no evidence of regret effects. Surprisingly, time-limited offers are more likely to be chosen when the time available for decision-making is longer. Overall, individuals show aversion to small-scale risk; this is stronger in price search than lottery choice. Allowing for this, choices in the two types of task tend to be mutually consistent at the individual level, even when decision-making is subject to tight time constraints.

Details: Forthcoming in Journal of Economic Behavior & Organization.  Online version available

Authors:   Robert Sugden, Mengjie Wang, Daniel John Zizzo