Product Demand Forecasting and Dynamic Pricing considering Consumers’ Mental Accounting and Peak‐End Reference Effects

We introduce a demand forecasting model for a monopolistic company selling products to consumers with double‐entry mental accounting, which means consumers experience pleasure when consuming goods or service and feel pains when paying for them. Moreover, as the monopolist changes prices, consumers form a reference price that adjusts an anchoring standard based on the lowest price that they perceived, namely, the peak‐end anchoring. We obtain the steady state prices under three different payment schemes for two‐ and infinite‐period. We also analyze the relationship between these steady prices and maximal profit and compare the steady state prices of different payment schemes by changing the double‐entry mental accounting’s parameters through numerical examples. The proposed model is computationally tractable for demand forecasting of realistic size.