Gurumurthy Kalyanaram, NYIT, former professor and Dean, reports on Prospect Theory and its application to Pricing.
Prospect theory (Kahneman&Tversky, 1979; Thaler, 1985) shows that consumers react sharply and adversely to perceived losses, and less favourably to perceived gains. This principle has found many business applications. For example, Barberis, Huang, and Santos (2001) show that investors react more sharply to losses in investment portfolio. There is asymmetric response to perceived fluctuations in wealth.
The asymmetric response has found wide applications in marketing, and particularly in pricing. Natarajan, Gurumurthy Kalyanaram, and Munch (2010) have shown such responses to new product announcements.
Prospect theory (Kahneman&Tversky, 1979; Thaler, 1985) shows that consumers react sharply and adversely to perceived losses, and less favourably to perceived gains. This principle has found many business applications. For example, Barberis, Huang, and Santos (2001) show that investors react more sharply to losses in investment portfolio. There is asymmetric response to perceived fluctuations in wealth.
The asymmetric response has found wide applications in marketing, and particularly in pricing. Natarajan, Gurumurthy Kalyanaram, and Munch (2010) have shown such responses to new product announcements.
