Risky discounts: Do people prefer them on a per-item or per-purchase basis and why?

Risky discounts differ from other discount formats in that the actual discount level is determined by chance (e.g., “scratch & save” cards). Four studies investigated whether consumers prefer to receive risky discounts on a per-purchase or per-item basis. Although these options do not differ with regard to expected value, they entail multiple differences (e.g., savings distribution, amount of individual gains, excitement, and effort involved) that may lead to differential consumer perceptions and experiences. Controlling for expected value of savings, participants preferred per-item over per-purchase discounts. As hypothesized, the main reasons for this preference were a partly incorrect perception of the properties of the savings distribution, the adoption of a narrow mindset focusing on the best outcome in a series of discount gambles, and the greater excitement provided by multiple discount gambles.

► Consumers prefer risky discounts on a per-item rather than per-purchase basis.
► Consumers ascribe this preference to superior discount favorability and enjoyment.
► Consumers err in their perception of the relative probability of discount rates.
► The errors reveal a failure to apply the law of large numbers to discount sampling.