The Optimality of Consumer Stockpiling Strategies

Robert J. Meyer, Joao Assuncao

The ability of consumers to make rational sequential purchase quantity decisions under imperfect knowledge about future prices in a product category is explored. Normatively, a consumer should make such decisions by defining a series of reservation prices which define how many buyingperiods' supply should be held given an observed price. An experiment is reported in which consumers make sequential purchase quantity decisions under variations in the shape of the distribution of prices and its trend over time. Results suggest a number of systematic deviations from optimality. When facing stationary uniform and bimodal price distributions, for example, subjects tend to systematically overbuy when small purchases are called for and underbuy when large purchases are called for. Likewise, when facing ascending or descending series, behavior is the opposite of that predicted by the normative analysis: there is an increasing tendency to defer purchases given increasing prices and accelerate purchases given descending prices. An explanation for the findings in terms of a Prospect Theory-type loss function in expenditures is offered. (Stockpiling, Price Expectations; Decision Making under Uncertainty; Sequential Decisions)