Managerial Regret and Inventory Pricing

Meng Li () and Yan Liu ()
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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

Management Science, 2022, vol. 68, issue 6, 4398-4414

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.

Keywords: revenue management; managerial bias; decision analysis; anticipated regret (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:68:y:2022:i:6:p:4398-4414

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