Psychological Heterogeneity in a Queue: The Impact of Loss Aversion on Service Pricing

The authors consider an M/M/1 queue with two types of customers, where customers are classified into two categories according to their psychological feelings when facing uncertainty about queue information. In the unobservable queue, experienced customers could accurately calculate their expected utilities, while first-time customers are loss-averse and the psychological feelings could incur additional gain-loss utilities. By defining customers' willingness to pay, the authors derive the equilibrium joining- balking behaviors for each type of customer and obtain the service provider's optimal pricing decision. The authors also classify the implications of the obtained results.