Bad news for pushy sales people: putting pressure on us to buy now or miss out doesn’t necessarily make us go for limited-time offers. In fact, a super-short ultimatum makes it less likely we’ll bite.

In a recent experiment, we gave participants a series of time-limited offers to discover their motivations for accepting or rejecting the opportunity. Offers were actually less likely to be chosen when time pressure was high than when it was low: increasing the period during which a time-limited offer was available from 4 to 12 seconds increased the probability that the time-limited offer was chosen by 13 per cent.

But if more buyers aren’t hustled into a snap decision by fear of missing out, why do we go for time-limited offers at all? We conclude that risk aversion is the dominant driver of purchases, provided the time pressure isn’t too extreme: ‘Accepting a time-limited offer is less risky than continuing to search for a better price, and it is known that most people prefer to avoid risk even in decisions that involve very small stakes.’

A decision to accept or reject a time-limited offer may be made under time pressure, and consumers may respond to this pressure by using rules of thumb that favour the choice of time-limited offers. Accepting a time-limited offer is less risky than continuing to search for a better price, and it is known that most people prefer to avoid risk even in decisions that involve very small stakes.

A common tactic by salespeople is to make offers that (it is claimed) will be withdrawn unless accepted immediately. Familiar examples of time-limited offers include the doorstep seller who claims that he is currently ‘in the area’ but will not be returning; the telephone seller who makes a ‘special offer’ that can be accepted only during that phone call; the internet site that offers a buy-now discount; and the seller of a used car who claims that another buyer has shown great interest in it and will be returning shortly.

Firms use time-limited offers to deter consumers from searching for lower prices. Because time-limited offers reduce competition between firms, they can lead to increases in market prices.

Our research shows that certain properties of consumers’ psychology, particularly aversion to small-scale risk, make time-limited offers particularly attractive, and that this attraction is stronger when consumers are not subject to high time pressure. There is growing concern that by using cookies to track the identities of website visitors, internet sellers may remove low-price offers between a potential buyer’s first and second visit.

Such time-limited offers create barriers to the search processes by which consumers compare prices, with the result that prices increase and the goods that consumers buy are less well matched to their preferences.

There are a number of psychological reasons for expecting consumers’ choices to be biased in favour of time-limited offers. A consumer who rejects the offer and continues to search may find that the rejected offer was in fact the best available, and this may induce painful feelings of regret. Choosing the offer and terminating the search process can be a method of avoiding regret.

The experiment investigated the extent of these biases. Participants chose from a sequence of alternative price offers, one of which might be time limited, under various conditions. These price search problems were matched with choices between lotteries, to test whether consumers were particularly averse to the risks involved in rejecting time-limited offers.

We find no evidence that the tendency for consumers to choose time-limited offers was intensified by desires to avoid regret.

Participants’ choices between accepting and rejecting time-limited offers reveal an overall tendency towards risk aversion. This tendency is much stronger when time pressure is low than when it is high. When time pressure is low, decisions about accepting or rejecting time limited offers are more risk-averse than equivalent choices between certainties and lotteries.

In conclusion, firms use time-limited offers to deter consumers from searching for lower prices. The search-deterring effects of time-limited offers are intensified by psychological factors, particularly when consumers are not subject to high time pressure.

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Notes:

  • This blog post is based on the authors’ paper ‘Take it or leave it: experimental evidence on the effect of time-limited offers on consumer behaviour’, presented in this year’s Annual Conference of the Royal Economic Society.
    University of East Anglia Centre for Behavioural and Experimental Social Science Working Paper 15-19
  • The post gives the views of its author, not the position of LSE Business Review or the London School of Economics.
  • Featured image credit: Hourglass, by FunkyFocus, under a CC0 licence
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Mengjie Wang I am a Ph.D. Student and Associate Tutor in the School of Economics at the University of East Anglia. I am also a student member of the Centre for Behavioural and Experimental Social Science (CBESS), and the Centre for Competition Policy (CCP). My research interests are in the areas of Behavioural and Experimental Economics, as well as in Behavioural Game Theory. My personal website can be found at here.

Robert Sugden is a Professor at the University of East Anglia’s School of Economics. His research uses a combination of theoretical, experimental and philosophical methods to investigate issues in welfare economics, social choice, choice under uncertainty, the foundations of decision and game theory, the methodology of economics, and the evolution of social conventions.  He is the author or editor of eight books, of which the most widely-read are Principles of Practical Cost-benefit Analysis (1978, with Alan Williams) and Economics of Rights, Co-operation and Welfare (1986 and 2004). He is the author of over 100 papers in refereed journals including American Economic Review, American Political Science Review, Econometrica, Economic Journal, Games and Economic Behavior, Journal of Economic Literature, Journal of Economic Theory, Journal of Philosophy, Review of Economic Studies, and Quarterly Journal of Economics.  He is one of the few UK economists included in the ISI Highly Cited list.

Daniel Zizzo is Dean of Research and Innovation in the Faculty of Humanities and Social Sciences at Newcastle University. He is also Acting Head of the Newcastle University Business School, where he is located as a Professor of Economics. He is Secretary of the Royal Economic Society’s Conference of Heads of University Departments of Economics (CHUDE), a Research Associate in the Centre for Applied Macroeconomic Analysis (CAMA) at Australian National University and a member of the UEA Centre for Behavioural and Experimental Social Science (CBESS), of the RCUK Centre for Copyright and New Business Models in the Creative Economy (CREATe) and of the UTS Paul Woolley Centre for Capital Market Dysfunctionality. He is primarily an experimental and behavioural economist. Current research interests include authority and organisational behavior, antisocial preferences, voting preferences, behavioural and cognitive game theory, bounded rationality and nudging, social preferences, trust, and the methodology of experimental economics.