Implications of Prospect Theory for the Pricing of Leisure Services

Prospect theory evolved in psychology 35years ago. It transitioned into economics, where it became one of the founding pillars of behavioral economics. This article uses prospect theory to inform explanations of the workings of eight heuristics used in pricing decisions: enterprise fund effect, semantic framing of discounts and premiums, promotional price, bundling and unbundling of services, hyperbolic discounting, endowment effect, sunk cost effect, and odd number pricing. Research is reviewed from the marketing, psychology, economics, and leisure literatures; examples are provided across a wide spectrum of leisure settings; and implications for leisure managers are suggested.