INFORMS Management Insight contrasts online highbrow and lowbrow movie rentals

Comparing the characteristics of 'highbrow' and 'lowbrow' films, online DVD rental services like Netflix can project the length of time that customers will rent films, according to the Management Insights feature in the current issue of Management Science, the flagship journal of the Institute for Operations Research and the Management Sciences (INFORMS®). Management Insights, a regular feature of the journal, is a digest of important research in business, management, operations research, and management science. It appears in every issue of the monthly journal.

"Highbrow Films Gather Dust: Time-Inconsistent Preferences and Online DVD Rentals" is by Katherine L. Milkman and Max H. Bazerman of Harvard Business School and Todd Rogers of the Analyst Institute.

The paper provides evidence from a study of online DVD rentals that when a choice is made for the future, in comparison to the present, customers find goods with more should characteristics (what they refer to as highbrow films) relatively more attractive than goods with more want characteristics (lowbrow films). The authors' results suggest that rental companies may be able to forecast how long customers will borrow different types of items based on the extent to which those items are shoulds versus wants.

The authors predict and find that should DVDs, such as documentaries, are held significantly longer than want DVDs, such as action films by the individual customer. Similarly, they predict and find that people are more likely to rent DVDs in one order and return them in the reverse order when should DVDs are rented before want DVDs. A 1.3% increase in the probability of a reversal in preferences (from a baseline rate of 12%) ensues if the first of two sequentially rented movies has more should and fewer want characteristics than the second film.

They find that as the same customers gain more experience with online DVD rentals, the extent to which they hold should films longer than want films decreases.

Similar implications follow for online and catalogue retailers that offer different shipment options and hope to forecast demand for goods that may be ordered either for immediate delivery or for delayed delivery — products classified as wants will likely be more attractive for immediate delivery.

Source: Institute for Operations Research and the Management Sciences