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Marketplace Phenomenon

Professor AKshay Rao How People Make Decisions Drives Professor’s Research

Unlike many academics, Professor Akshay Rao worked in the corporate world after receiving his MBA. From managing sales people to making pricing, branding, and technology decisions, Rao was left feeling they often did a poor job -- operating out of instinct and industry lore, rather than "science." That’s when he began his PhD program and took an interest in pricing.

"Why pricing? Well it was what bugged me the most when I was working,' Rao said. 'It's a practical problem, and it turns out that the underlying theories are very interesting and complex. And managers would benefit from understanding them."

When Rao first started his PhD, he didn't see much value in academic research. It struck him as odd that people would spend so much time, effort, and energy asking and answering what seemed to be a pretty simple question, then fight to get it published in a journal. And then he did his own project. He still remembers the excitement of collecting data, analyzing it, and waiting to find out if his hypothesis was right or wrong.

"The sheer feeling of exhilaration," Rao said. "I confronted reality, and I won. So that kind of curiosity, 'I wonder why, I wonder if, I wonder what would happen if' is what keeps me going right now."

While he continues to work on pricing issues, his interests have expanded greatly. He is currently part of a project that analyzes people's reactions to faces. If a person looks at themselves in the mirror, they're looking at a lateral inversion (mirror image) of their face, not their true image. People tend to like their mirror image more than their true image, because they see it so often. But they tend to prefer their spouse's true image compared to their mirror image because that's what they are used to seeing. Taking that finding, the researchers are predicting that if they take someone's mirror image and morph it into a political candidates' face, that person will like that candidate better than if they morph that person's true image into the candidate's face. Whether that's true or not is an important question for political candidates and advertisers.  Rao is curious to see if it works out how he predicted.

One of Rao's papers now under review looks at how different physical experiences affect people's feelings about a product. For example, in Hong Kong, they list subway maps vertically. The researchers asked people to count the stops from Station A, which is at the bottom, to Station B at top. With another group, Station A was on top and Station B on bottom. So one group moved their heads upward and another group moved their heads downwards. After performing other tasks and under the pretense of testing stimuli for another experiment, participants were then asked what they thought about a product that either descended or ascended on a computer screen.

It turned out that people who had counted subway stations from top to bottom liked the coffee mug more when it descended. People who counted the subway stations from bottom to top liked the coffee cup more when it ascended. The researchers found the same effect for other conditions, such as people moving their eyes left to right, right to left, fast, slow, or while listening to fast music. So, if a company is selling a product online, and the product appears from left to the right, the odds of getting consumers to like it increase if, just before that, they’re shown animation that has them moving their eyes from left to right. If there is a pair of shoes at the end of an aisle at a store, if the shoes are pointing in the same direction in which customers are walking, they're more likely to buy them. How a product is displayed should be consistent with what is called the "embodied cognition of prior experiences," or the physical experience the consumer just had by moving their eyes, heads, or bodies.

In another paper, researchers analyzed the conditions in which "pay what you want" pricing schemes work. For example, Radiohead's digital album In Rainbows allowed fans to "pay what you want" for it, and wound up a surprise success. This raises the question, under what conditions, and for what kind of firms, will "pay what you want" work? The researchers found that there has to be a dedicated, loyal fan group that really cares about the product's continued existence and there also has to be a casually interested group. The fan group urges the casual group to spend a little bit and the fan group pays more because they're worried that the product's firm will not make enough money and will then go back to a higher fixed price. If the fans get enough people to pay, the firm makes the same profit, and everyone wins.

"The consumer wants to pay less, and they want the firm to not charge a price that is beyond what is called their reservation price, or the maximum they're willing to pay," Rao said. "So now suddenly the consumer has an incentive to help the firm because they care about the outcome."

In general terms, Rao is interested in marketplace phenomenon -- pricing, branding, channels of distribution, and looking into what goes on inside the human brain as people confront pieces of information and make decisions.

"If something is interesting, I pursue it. If I don't know anything about it, I try to figure it out," Rao said. "Most importantly, I'm influenced greatly by my PhD students, who teach me a whole lot more than I teach them."


Akshay Rao


PhD, 1986
Virginia Tech

MBA, 1980
Xavier Institute

BA, 1978
Economics (Honors)
Madras University

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