Price sequences, perceived variability, and choice

Sequences of prices are becoming more commonplace but there is limited research on their behavioral effects. The purpose of this paper is to determine if a sequence of past prices, and particularly its variance, has a strong effect on choice. Will people pay significantly more for a seller who has a more predictable history of past prices?

Past theory is drawn upon to create predictions regarding how individuals will perceive and value past sequences of prices. One experimental study is conducted to test preference and choice based on past price sequences.

Individuals more frequently choose a vendor with past prices that fall into a predictable pattern, even when doing so results in higher future prices to be paid.

This paper not only tests notions that have anecdotal support (e.g. preference for fixed vs floating interest rates, despite the higher cost of doing so), but also demonstrates that a person ' s distaste for perceived variability is sufficiently strong so as to result in a willingness to pay 40 percent more for this predictability.