Deviation From Price Expectation: Findings Regarding Prospect Theory and Price Impression

Abstract

Price recall error has been found to display an assimilation pattern as stimulus prices deviated from price expectation (DPE). This data was examined for prospect theory consistent results. Prospect theory would indicate that a loss relative to price expectation (negative DPE) would have a greater impact on individuals than a gain (positive DPE) of the same magnitude. This research found no significant results in support of prospect theory although patterns of price recall error showed some consistency with the theory. This research also compared an affective measure of price -- price impression -- with a previously studied cognitive measure -- price recall error. As was expected price impression was positively related to price levels, however, price recall error was still pulled in the direction of expectations attesting to the strength of this expectation effect.