IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v64y2018i1p421-436.html
   My bibliography  Save this article

Multiattribute Loss Aversion and Reference Dependence: Evidence from the Performing Arts Industry

Author

Listed:
  • Necati Tereyağoğlu

    (Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30308)

  • Peter S. Fader

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Senthil Veeraraghavan

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

We study the prevalence of multiattribute loss aversion and reference effects in a revenue management setting based on data of individual-level purchases over a series of concert performances. The reference dependence that drives consumer choice is not only based on the price but also on observed sales (as a fraction of the seating capacity) during their past visits. We find that consumers suffer from loss aversion on both prices and seats sold: consumers incur significant utility loss when prices are above their references or when the actual seat sales are lower than their references. We suggest pricing policies that can address consumer decisions driven by such reference dependence and loss aversion.

Suggested Citation

  • Necati Tereyağoğlu & Peter S. Fader & Senthil Veeraraghavan, 2018. "Multiattribute Loss Aversion and Reference Dependence: Evidence from the Performing Arts Industry," Management Science, INFORMS, vol. 64(1), pages 421-436, January.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:1:p:421-436
    DOI: 10.1287/mnsc.2016.2605
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/mnsc.2016.2605
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2016.2605?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Zeynep Akşin & Baris Ata & Seyed Morteza Emadi & Che-Lin Su, 2017. "Impact of Delay Announcements in Call Centers: An Empirical Approach," Operations Research, INFORMS, vol. 65(1), pages 242-265, February.
    2. Tanjim Hossain & John A. List, 2012. "The Behavioralist Visits the Factory: Increasing Productivity Using Simple Framing Manipulations," Management Science, INFORMS, vol. 58(12), pages 2151-2167, December.
    3. Thierry Post & Martijn J. van den Assem & Guido Baltussen & Richard H. Thaler, 2008. "Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show," American Economic Review, American Economic Association, vol. 98(1), pages 38-71, March.
    4. Greg M. Allenby & Peter E. Rossi, 1991. "Quality Perceptions and Asymmetric Switching Between Brands," Marketing Science, INFORMS, vol. 10(3), pages 185-204.
    5. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1233-1260.
    6. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    7. Becker, Gary S, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1109-1116, October.
    8. Guillaume Roels & Xuanming Su, 2014. "Optimal Design of Social Comparison Effects: Setting Reference Groups and Reference Points," Management Science, INFORMS, vol. 60(3), pages 606-627, March.
    9. Senthil Veeraraghavan & Laurens Debo, 2009. "Joining Longer Queues: Information Externalities in Queue Choice," Manufacturing & Service Operations Management, INFORMS, vol. 11(4), pages 543-562, April.
    10. Devin G. Pope & Maurice E. Schweitzer, 2011. "Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes," American Economic Review, American Economic Association, vol. 101(1), pages 129-157, February.
    11. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    12. Krishnamurthi, Lakshman & Mazumdar, Tridib & Raj, S P, 1992. "Asymmetric Response to Price in Consumer Brand Choice and Purchase Quantity Decisions," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 19(3), pages 387-400, December.
    13. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    14. Kalyanaram, Gurumurthy & Little, John D C, 1994. "An Empirical Analysis of Latitude of Price Acceptance in Consumer Package Goods," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 21(3), pages 408-418, December.
    15. Liu Yang & Francis de Véricourt & Peng Sun, 2014. "Time-Based Competition with Benchmark Effects," Manufacturing & Service Operations Management, INFORMS, vol. 16(1), pages 119-132, February.
    16. Patrick DeGraba, 1995. "Buying Frenzies and Seller-Induced Excess Demand," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 331-342, Summer.
    17. Javad Nasiry & Ioana Popescu, 2011. "Dynamic Pricing with Loss-Averse Consumers and Peak-End Anchoring," Operations Research, INFORMS, vol. 59(6), pages 1361-1368, December.
    18. Peter M. Guadagni & John D. C. Little, 1983. "A Logit Model of Brand Choice Calibrated on Scanner Data," Marketing Science, INFORMS, vol. 2(3), pages 203-238.
    19. Zeynep Akşin & Barış Ata & Seyed Morteza Emadi & Che-Lin Su, 2013. "Structural Estimation of Callers' Delay Sensitivity in Call Centers," Management Science, INFORMS, vol. 59(12), pages 2727-2746, December.
    20. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    21. Sam Aflaki & Ioana Popescu, 2014. "Managing Retention in Service Relationships," Management Science, INFORMS, vol. 60(2), pages 415-433, February.
    22. Levon Barseghyan & Jeffrey Prince & Joshua C. Teitelbaum, 2011. "Are Risk Preferences Stable across Contexts? Evidence from Insurance Data," American Economic Review, American Economic Association, vol. 101(2), pages 591-631, April.
    23. Gurumurthy Kalyanaram & Russell S. Winer, 1995. "Empirical Generalizations from Reference Price Research," Marketing Science, INFORMS, vol. 14(3_supplem), pages 161-169.
    24. Gadi Fibich & Arieh Gavious & Oded Lowengart, 2003. "Explicit Solutions of Optimization Models and Differential Games with Nonsmooth (Asymmetric) Reference-Price Effects," Operations Research, INFORMS, vol. 51(5), pages 721-734, October.
    25. Phillip Leslie, 2004. "Price Discrimination in Broadway Theater," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 520-541, Autumn.
    26. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    27. Ioana Popescu & Yaozhong Wu, 2007. "Dynamic Pricing Strategies with Reference Effects," Operations Research, INFORMS, vol. 55(3), pages 413-429, June.
    28. Praveen K. Kopalle & Ambar G. Rao & João L. Assunção, 1996. "Asymmetric Reference Price Effects and Dynamic Pricing Policies," Marketing Science, INFORMS, vol. 15(1), pages 60-85.
    29. Bruce G. S. Hardie & Eric J. Johnson & Peter S. Fader, 1993. "Modeling Loss Aversion and Reference Dependence Effects on Brand Choice," Marketing Science, INFORMS, vol. 12(4), pages 378-394.
    30. David R. Bell & James M. Lattin, 2000. "Looking for Loss Aversion in Scanner Panel Data: The Confounding Effect of Price Response Heterogeneity," Marketing Science, INFORMS, vol. 19(2), pages 185-200, May.
    31. Winer, Russell S, 1986. "A Reference Price Model of Brand Choice for Frequently Purchased Products," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 13(2), pages 250-256, September.
    32. Laurens G. Debo & Christine Parlour & Uday Rajan, 2012. "Signaling Quality via Queues," Management Science, INFORMS, vol. 58(5), pages 876-891, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marshall Fisher & Santiago Gallino & Jun Li, 2018. "Competition-Based Dynamic Pricing in Online Retailing: A Methodology Validated with Field Experiments," Management Science, INFORMS, vol. 64(6), pages 2496-2514, June.
    2. Victor Martínez-de-Albéniz & Ana Valdivia, 2019. "Measuring and Exploiting the Impact of Exhibition Scheduling on Museum Attendance," Manufacturing & Service Operations Management, INFORMS, vol. 21(4), pages 761-779, October.
    3. Hyun Joung Jin & Eun Young You, 2019. "Do Discounts in Ticket Prices Induce Sustainable Profit to Performing Arts Suppliers?," Sustainability, MDPI, vol. 11(14), pages 1-12, July.
    4. Genakos, Christos & Roumanias, Costas & Valletti, Tommaso, 2023. "Is having an expert “friend” enough? An analysis of consumer switching behavior in mobile telephony," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 359-372.
    5. Jun Li & Serguei Netessine & Sergei Koulayev, 2018. "Price to Compete … with Many: How to Identify Price Competition in High-Dimensional Space," Management Science, INFORMS, vol. 64(9), pages 4118-4136, September.
    6. Zhihua Li & Songfa Zhong, 2023. "Reference Dependence in Intertemporal Preference," Management Science, INFORMS, vol. 69(1), pages 475-490, January.
    7. Sivakumar, K. & Feng, Cong, 2019. "Patterns of product improvements and customer response," Journal of Business Research, Elsevier, vol. 104(C), pages 27-43.
    8. Qiuping Yu & Gad Allon & Achal Bassamboo, 2021. "The Reference Effect of Delay Announcements: A Field Experiment," Management Science, INFORMS, vol. 67(12), pages 7417-7437, December.
    9. Lei Yan & Jianhao Gao & Shuang Wang & Shandong Mou & Guangye Xu & Haiyan Wang, 2023. "Product Quality Matching Strategy in a Dual-Channel Supply Chain: A Perspective From Mental Accounting Theory in Behavioral Finance," SAGE Open, , vol. 13(2), pages 21582440231, May.
    10. Guo, Feiyu & Cao, Erbao, 2021. "Can reference points explain vaccine hesitancy? A new perspective on their formation and updating," Omega, Elsevier, vol. 99(C).
    11. Verena Komander & Andreas König, 2024. "Organizations on stage: organizational research and the performing arts," Management Review Quarterly, Springer, vol. 74(1), pages 303-352, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2017. "A theory of price adjustment under loss aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 78-95.
    2. van Oest, Rutger, 2013. "Why are Consumers Less Loss Averse in Internal than External Reference Prices?," Journal of Retailing, Elsevier, vol. 89(1), pages 62-71.
    3. Arnoud V. den Boer & N. Bora Keskin, 2022. "Dynamic Pricing with Demand Learning and Reference Effects," Management Science, INFORMS, vol. 68(10), pages 7112-7130, October.
    4. Kopalle, Praveen K. & Kannan, P.K. & Boldt, Lin Bao & Arora, Neeraj, 2012. "The impact of household level heterogeneity in reference price effects on optimal retailer pricing policies," Journal of Retailing, Elsevier, vol. 88(1), pages 102-114.
    5. Neumann, Nico & Böckenholt, Ulf, 2014. "A Meta-analysis of Loss Aversion in Product Choice," Journal of Retailing, Elsevier, vol. 90(2), pages 182-197.
    6. Xin Chen & Peng Hu & Stephen Shum & Yuhan Zhang, 2016. "Dynamic Stochastic Inventory Management with Reference Price Effects," Operations Research, INFORMS, vol. 64(6), pages 1529-1536, December.
    7. David R. Bell & James M. Lattin, 2000. "Looking for Loss Aversion in Scanner Panel Data: The Confounding Effect of Price Response Heterogeneity," Marketing Science, INFORMS, vol. 19(2), pages 185-200, May.
    8. Zhenyu Hu & Javad Nasiry, 2018. "Are Markets with Loss-Averse Consumers More Sensitive to Losses?," Management Science, INFORMS, vol. 64(3), pages 1384-1395, March.
    9. Zhang, Jie & Chiang, Wei-yu Kevin, 2020. "Durable goods pricing with reference price effects," Omega, Elsevier, vol. 91(C).
    10. Yasemin Boztug & Lutz Hildebrandt, 2005. "An empirical test of theories of price valuation using a semiparametric approach, reference prices, and accounting for heterogeneity," SFB 649 Discussion Papers SFB649DP2005-057, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    11. Dmitri Kuksov & Kangkang Wang, 2014. "The Bright Side of Loss Aversion in Dynamic and Competitive Markets," Marketing Science, INFORMS, vol. 33(5), pages 693-711, September.
    12. Martín-Herrán, Guiomar & Taboubi, Sihem, 2015. "Price coordination in distribution channels: A dynamic perspective," European Journal of Operational Research, Elsevier, vol. 240(2), pages 401-414.
    13. Colombo, Luca & Labrecciosa, Paola, 2021. "Dynamic oligopoly pricing with reference-price effects," European Journal of Operational Research, Elsevier, vol. 288(3), pages 1006-1016.
    14. Zhang, Jie & Kevin Chiang, Wei–yu & Liang, Liang, 2014. "Strategic pricing with reference effects in a competitive supply chain," Omega, Elsevier, vol. 44(C), pages 126-135.
    15. Nicolau, Juan L., 2011. "Differentiated price loss aversion in destination choice: The effect of tourists’ cultural interest," Tourism Management, Elsevier, vol. 32(5), pages 1186-1195.
    16. Vincenzina Caputo & Jayson L Lusk & Rodolfo M Nayga, 2020. "Am I Getting a Good Deal? Reference‐DependentDecision Making When the Reference Price Is Uncertain," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(1), pages 132-153, January.
    17. Toshiaki Iizuka & Hitoshi Shigeoka, 2020. "Asymmetric Demand Response when Prices Increase and Decrease: The Case of Child Healthcare," NBER Working Papers 28057, National Bureau of Economic Research, Inc.
    18. Moon, Sangkil & Voss, Glenn, 2009. "How do price range shoppers differ from reference price point shoppers?," Journal of Business Research, Elsevier, vol. 62(1), pages 31-38, January.
    19. Robert Slonim & Ellen Garbarino, 2009. "Similarities and differences between stockpiling and reference effects," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 351-371.
    20. Ioana Popescu & Yaozhong Wu, 2007. "Dynamic Pricing Strategies with Reference Effects," Operations Research, INFORMS, vol. 55(3), pages 413-429, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:64:y:2018:i:1:p:421-436. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.