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Integration/Segregation of Gains and Losses

Our research uses ideas deriving from mental accounting and prospect theory, and relates them to market place practices. From theory, we use the concept of mental segregation, meaning that people may keep different amounts, such as different sums of money, separate in mind. Even when the amounts relate to the same thing, in our case a product, they may then be used differently when making a decision, than would the single, combined amount. We predict that this phenomenon can be used to influence product purchase decisions. In particular, we investigate whether presenting a price as separate base price and rebate amounts results in different decisions than does presenting it as a single discounted price. Preliminary results provide support for our prediction that a large price reduction is better presented as a single price, whereas a small reduction is better framed as a separate rebate. In addition, we predict that the effect will depend, on an individual level, on how much more sensitive a person is to losses compared to gains from some base level.

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Center for Decision Sciences

Columbia Business School
310 Uris Hall
3022 Broadway
New York, NY 10027-6902
212-854-5513
DECISION_SCIENCES@COLUMBIA.EDU

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