Pricing strategy is a funny area of business that everyone seems to hate. What role does the brain play in this, and how can you leverage behavioral economics to overcome your brain’s natural tendencies?
Prospect theory proposes that when making decisions people use a reference point to frame prospective alternative outcomes as either potential gains or losses; when considering prospective gains, they are risk-averse and prefer certainty, but when considering prospective losses, they are risk-prone and prefer to risk the possibility of larger but uncertain losses. However, when setting prices people make decisions that contradict prospect theory: they are risk prone when cutting prices with the prospect of revenue gains, and risk averse when raising prices that they associate with perceived revenue losses.
What goes through your head when choosing between different payment options?
Emerging insights on “temporal contagion” explain the unusual contours of limited-edition markets.
