IDEAS home Printed from https://ideas.repec.org/a/inm/ormsom/v27y2025i5p1497-1514.html
   My bibliography  Save this article

Mental Accounting in Allocating Capacity

Author

Listed:
  • Meng Li

    (Department of Decision and Information Sciences, C.T. Bauer College of Business, University of Houston, Houston, Texas 77004)

  • Yan Liu

    (Department of Logistics and Maritime Studies, Faculty of Business, The Hong Kong Polytechnic University, Hong Kong)

Abstract

Problem definition : This study investigates a seller’s allocation of a limited resource to sequentially arriving customers when the seller is influenced by two types of mental accounting bias: prospective accounting (overestimating future revenue) and behavioral discounting (underestimating future revenue). Methodology/results : We establish structural properties on how mental accounting affects capacity allocation decisions and performance. Interestingly, whereas additional capacity consistently benefits the seller, the same does not hold true for additional demands. That is, an additional class of demand can hurt the seller, depending on the type of mental accounting. This is true even if the additional demand class has a higher reservation price than existing ones. Managerial implications : This result highlights the importance for companies to address and mitigate biases in decision makers before embarking on market expansion initiatives through promotions and advertising campaigns.

Suggested Citation

  • Meng Li & Yan Liu, 2025. "Mental Accounting in Allocating Capacity," Manufacturing & Service Operations Management, INFORMS, vol. 27(5), pages 1497-1514, September.
    • Handle: RePEc:inm:ormsom:v:27:y:2025:i:5:p:1497-1514
    DOI: 10.1287/msom.2024.0804
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/msom.2024.0804
    Download Restriction: no
    File URL: https://libkey.io/10.1287/msom.2024.0804?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
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    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:ormsom:v:27:y:2025:i:5:p:1497-1514. 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.

    We have no bibliographic references for this item. You can help adding them by using 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.