Ups and Downs in Experience Design

58 Pages Posted: 13 May 2022 Last revised: 18 Jun 2023

See all articles by Hongqiao Chen

Hongqiao Chen

Nanjing University - School of Management and Engineering

Ming Hu

University of Toronto - Rotman School of Management

Jingchen Liu

Renmin University of China - School of Business

Yaniv Ravid

University of Toronto, Rotman School of Management, Students

Date Written: July 8, 2022

Abstract

We showcase four general settings in experience design where the framework of prospect theory uncovers critical decision-making insights. First, we study the problem of releasing a piece of good news vs. bad news, where a service provider may incrementally reveal the news over a preemptive period. We characterize the optimal release strategy for both good and bad news and show that when the ultimate news is good (resp., bad) and the audience is sufficiently gain-seeking, it is optimal to first release information of a negative (resp., positive) sentiment. Second, we consider the problem of organizing an event such as a concert with performances of known valuations, where a service provider needs to arrange the sequence of all performances. We show that for both loss-averse and gain-seeking audiences, interior peaks can be optimal, where pleasant and aversive performances are arranged to alternate throughout the event. Third, we investigate the problem of simultaneous vs. sequential release of a series, such as songs or TV episodes, where a service provider does not know a priori the audience's exact valuation of each item. We show that if the audience's sensitivity to losses is sufficiently small (resp., large), the optimal strategy is to release all items in the series sequentially (resp., simultaneously). Lastly, we study the problem of deciding whether to perform first vs. second such as in soccer penalty shootouts, when both teams have initial expectations of their likelihood of success and are uncertain about whether they will perform well. We show that when expectations are high or if teams are sufficiently loss averse, the optimal decision is to perform second. Across all of the settings, we show that the audience's sensitivity to losses relative to a reference point is a critical factor that governs how to design and manage the audience's evolving experience dynamics.

Keywords: prospect theory, experienced utility, series release, news release, experiential service design

JEL Classification: D03, L82

Suggested Citation

Chen, Hongqiao and Hu, Ming and Liu, Jingchen and Ravid, Yaniv, Ups and Downs in Experience Design (July 8, 2022). Available at SSRN: https://ssrn.com/abstract=4088821 or http://dx.doi.org/10.2139/ssrn.4088821

Hongqiao Chen

Nanjing University - School of Management and Engineering ( email )

Nanjing, 210093
China

Ming Hu

University of Toronto - Rotman School of Management ( email )

105 St. George st
Toronto, ON M5S 3E6
Canada
416-946-5207 (Phone)

HOME PAGE: http://ming.hu

Jingchen Liu

Renmin University of China - School of Business ( email )

Beijing
China

Yaniv Ravid (Contact Author)

University of Toronto, Rotman School of Management, Students ( email )

Toronto, ON
Canada

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