Analyses on Strategic Consumers' Forward Looking Behavior
Ertan, Ilhan Emre
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This dissertation includes three essays. The ﬁrst two essays focus on analyzing consumers’ strategic waiting behavior, and the third essay addresses the differences in consumers’ risk preferences while making decisions for different temporal spots. Due to the long history of markdown applications, in time consumers have built rational expectations from the seller to provide markdown discounts throughout a selling horizon. We investigate the assumption that as rational utility maximizers, consumers act according to maximizing their utility over time. In the ﬁrst essay, we intend to identify the underlying determinants of consumers’ sequential decision making processes under uncertain product availability. We structure a benchmark optimal purchase timing policy in a market environment, in which a single strategic customer could only follow the markdown pricing scheme, the available inventory level and the remaining time to the end of the selling horizon to maximize his expected surplus from the purchase. In the second essay, we present a set of controlled human subject experiments that investigate how people make purchase timing decisions under product purchase uncertainty. The impact of experiencing Stock Out, when the consumer waits too long and the product is sold out at the retailer and the impact of experiencing Over Pay, when the consumer decides to buy early and ﬁnds the product available at a deeper discount later, are analyzed with a unique sequential decision making task through our experimental studies. We identiﬁed that human subjects are on average more risk seeking than the analytical model predicts. In the end, we propose a behavioral choice model which incorporates human subjects’ attitudes towards feelings of regret rooted from Stock Out and Over Pay. After observing the impact of risk preferences on consumers’ purchase timing decisions, in the third essay, we look into the human subjects’ attitudes towards making decisions with uncertain outcomes at different time points. We found that consumers show less risk averse risk preference while making decisions for uncertain hedonic products compared to the risk preferences while making decisions for utilitarian products, which is a big contrast to the experimental economics literature. Using subjects’ product consumption size as a co-variate sheds light onto our analysis, indicating the importance of motivational control in eliciting risk preferences when using primary rewards as the incentive mechanism for risk preference elicitation experiments.