Probabilistic Discounts: When Retailing and Las Vegas Meet

Nina Mazar, Massachusetts Institute of Technology
Dan Ariely, Massachusetts Institute of Technology
What would you choose: a fixed-discount that offers 10% off your purchase or a probabilistic-discount that offers a 10% chance to get your purchase for free? Based on the observation that people like to gamble we explore the benefits of a new type of discount that combines retailing with gambling: the probabilistic-discount. We find situations in which consumers prefer the probabilistic-discount to the fixed-discount and even spend more money with it. Next, we examine whether the preference is due to the attraction of zero-price, the possibility to avoid the pain of paying, or the excitement of the gamble itself.
[ to cite ]:
Nina Mazar and Dan Ariely (2008) ,"Probabilistic Discounts: When Retailing and Las Vegas Meet", in NA - Advances in Consumer Research Volume 35, eds. Angela Y. Lee and Dilip Soman, Duluth, MN : Association for Consumer Research, Pages: 185-188.