Decisions on Probabilistic Selling for Consumers with Different Risk Attitudes

Yeu-Shiang Huang (), Tzu-Yi Wu (), Chih-Chiang Fang () and Tzu-Liang (Bill) Tseng ()
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Yeu-Shiang Huang: Department of Industrial and Information Management, Center for Innovative FinTech Business Models, National Cheng Kung University, Tainan, Taiwan 70101
Tzu-Yi Wu: Department of Industrial and Information Management, National Cheng Kung University, Tainan, Taiwan 70101
Chih-Chiang Fang: School of Computer Science and Software, Zhaoqing University, Guangdong Province 526061, China
Tzu-Liang (Bill) Tseng: Department of Industrial, Manufacturing and Systems Engineering, University of Texas at El Paso, El Paso, Texas 79968

Decision Analysis, 2021, vol. 18, issue 2, 121-138

Abstract: Consumer attitudes toward probabilistic goods are affected not only by their personal preferences, but also by their risk propensity. However, because the probability of obtaining their preferred items is determined by the retailer, consumers must search for related information and rely on their own subjective judgments to reduce the risk of not obtaining them. This study investigates the effects that consumer risk attitudes and word of mouth have on consumers’ purchase decisions regarding probabilistic goods and develops a pricing model for probabilistic selling in which a retailer offers probabilistic goods to heterogeneous consumers with different risk attitudes and possible social interactions. The analytical results show that a retailer’s profit decreases as the degree of risk aversion increases under the probabilistic selling strategy. In addition, word of mouth affects consumers’ purchasing decisions regarding different degrees of belief that they will obtain their preferred items. When the word-of-mouth effect decreases, the consumers’ perceived probability of obtaining their preferred items also decreases, which, consequently, reduces the retailer’s profits.

Keywords: probabilistic goods; probabilistic selling; perceived risk; word of mouth; subjective probability (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:18:y:2021:i:2:p:121-138

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