Managerial Regret and Inventory Pricing

Management Science

29 Pages Posted: 14 Jan 2021 Last revised: 20 Apr 2021

See all articles by Meng Li

Meng Li

University of Houston - Department of Decision & Information Sciences

Yan Liu

School of Management, University of Science and Technology of China

Date Written: November 8, 2020

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, 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.

Suggested Citation

Li, Meng and Liu, Yan, Managerial Regret and Inventory Pricing (November 8, 2020). Management Science, Available at SSRN: https://ssrn.com/abstract=3726966 or http://dx.doi.org/10.2139/ssrn.3726966

Meng Li (Contact Author)

University of Houston - Department of Decision & Information Sciences ( email )

United States

Yan Liu

School of Management, University of Science and Technology of China ( email )

Hefei, Anhui
China

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