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Managerial Regret and Inventory Pricing

Author

Listed:
  • Meng Li

    (C. T. Bauer College of Business, University of Houston, Houston, Texas 77204)

  • Yan Liu

    (International Institute of Finance, School of Management, University of Science and Technology of China, Hefei 230026, China)

Abstract

In this paper, we study a regretful seller’s problem of selling a fixed number of goods over a finite and known time horizon. The seller engages in counterfactual thinking to compare her selected price with other forgone alternatives. If a forgone alternative (ex post) generates a better outcome than the selected one, then the seller experiences regret. We characterize the pricing decision of a regretful seller and find that, although regret leads the seller to set a price that is lower than that set by an unbiased seller, the regretful seller employs decision policies whose structure is similar to those of the unbiased seller: the price decreases with the remaining inventory and increases with the time-to-go. Interestingly, we find that the seller who has a greater number of goods does not necessarily receive greater revenue.

Suggested Citation

  • Meng Li & Yan Liu, 2022. "Managerial Regret and Inventory Pricing," Management Science, INFORMS, vol. 68(6), pages 4398-4414, June.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:6:p:4398-4414
    DOI: 10.1287/mnsc.2021.4073
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    References listed on IDEAS

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