Decision Biases in Revenue Management: Some Behavioural Evidence

The authors study a problem of selling a fixed number of perishable goods over a finite and known horizon. After presenting a procedure for computing optimal decision policies and some numerical results on a simple heuristic policy for the problem, the authors describe results from two experiments involving financially motivated subjects. The experiments reveal that decision makers employ policies of the same form of the optimal policy. However, they show systematic biases to demand too much when they have many units to sell and too little when they have few to sell, resulting in between 8 and 11% revenue losses. The authors also propose some new ways in which behavioural studies can complement theoretical work in pricing and revenue management.