Heuristic price theory: A model of pluralistic price evaluations

Abstract

Economic price theory assumes that consumers' responses to prices can be characterized by stable demand curves and price elasticities. The author posits that this assumption lacks descriptive validity because the demand curve is rather unstable; subtle changes in framing and contextual cues can change the demand curve. The article outlines heuristic price theory, which posits that price evaluations are pluralistic in nature. Each price evaluation entails several heuristic decision rules (or decision criteria) that are activated by conscious and unconscious evaluative responses to price and the contextual cues. The extant literature identifies six types of evaluative responses that influence these heuristic decision rules: the pain of paying, price comparisons, price–quality inferences, price negotiability judgments, price fairness judgments, and price–feature tradeoff. To predict how prices influence consumer behavior in a particular context, it is important to identify the heuristic decision rules being used in that context. This implies that managers and researchers, instead of focusing only on estimating price elasticities using stylized demand curves, should also study the heuristic decision rules that shoppers use to evaluate prices.