Reflexive Positivity: How Uncertainty Can Improve Promotions

Abstract:     
When should retailers offer promotions with uncertain rewards? The current research investigates this question and finds there are instances when uncertain incentives may seem more attractive than their expected value. For example, a lottery between small and large rewards may even be as attractive as the large reward for certain. We demonstrate this effect in hypothetical scenarios as well as a field experiment involving actual purchases. We suggest that this effect occurs because consumers exhibit reflexive positivity whereby their intuitive appraisal of the lottery leads to a response beyond what would be justified by an expected value consideration. This underlying psychological mechanism informs research on risk and uncertainty and outlines boundary conditions for this positive effect of uncertainty that have direct practical implications for marketers.

Keywords: Uncertainty, Promotions, Wishful Thinking, Optimism

JEL Classifications: D80, D81, E3, M3, M31

Working Paper Series