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Motivating Discounts: Price Motivated Reasoning

30 Pages Posted: 30 Jun 2007  

On Amir

University of California, San Diego (UCSD) - Rady School of Management

Erica Dawson

Yale School of Management

Date Written: June 2007

Abstract

The behavioral implications of large discounts have been viewed from two opposing perspectives. From an attribution perspective, a large discount signals low quality and decreases the overall appeal of the product, but from a motivational account, a large discount seems attractive and increases the overall appeal of the product. We demonstrate the existence of both accounts, and suggest that the motivated reasoning account triumphs when the intrinsic attraction is high enough. We thus suggest that given the overwhelming amount of uncertainty in product fit and consumption benefits, consumers' beliefs regarding the reason for a discount may depend on their motivational states. On a theoretical level, the current work is amongst the first to use psychological theories to propose some structure for the belief formation processes in price signaling models.

Keywords: pricing, motivated reasoning, signaling, discounts, promotions

JEL Classification: D1, D11, D4, L11, M3, M30, M31

Suggested Citation

Amir, On and Dawson, Erica, Motivating Discounts: Price Motivated Reasoning (June 2007). Available at SSRN: https://ssrn.com/abstract=997474 or http://dx.doi.org/10.2139/ssrn.997474

On Amir (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
858-534-2023 (Phone)
858-534-0745 (Fax)

HOME PAGE: http://management.ucsd.edu/faculty/directory/amir/

Erica Dawson

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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