Nudging with Discounts: Evidence from Airline Ticket Purchases (2023)

Undergraduate: Charles Blanton

Faculty Advisor: Jonathan Williams
Department: Economics

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This paper studies the effects of surprise discounts on purchase intentions of airline customers. I use a North American airline’s randomized controlled trial to estimate the effects of a 15 percent price discount on passenger responses using various observable passenger and flight factors. This paper maintains the notion that price discounts increase purchase intentions with positive average marginal effects across all customer types. Moreover, I identify heterogeneity in the behavioral responses to hidden price discounts. I incorporate the average marginal effects into a cost-benefit analysis to recommend the airline targets particular customer types with price discounts. Importantly, I show that the most responsive customer types are not the most profitable customer types.

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