Applying Behavioral Economics in Predictive Analytics for B2B Churn: Findings from Service Quality Data

34 Pages Posted: 25 Nov 2016 Last revised: 1 May 2017

See all articles by Arash Barfar

Arash Barfar

University of Nevada, Reno - College of Business Administration

Balaji Padmanabhan

University of South Florida - College of Business Administration

Alan Hevner

University of South Florida - College of Business Administration

Date Written: November 21, 2016

Abstract

Motivated by the long-standing debate on rationality in behavioral economics and the potential of theory-driven predictive analytics, this paper examines the link between service quality and B2B churn. Using longitudinal B2B transactional data with service quality indicators provided by a large company, we present evidence that both rationality and bounded-rationality assumptions play significant roles in predicting organizational decisions on churn. Specifically, variables that relate to the assumed rationality of organizations appear to provide accurate predictions while, at the same time, variables that capture boundedly rational decision rules appear to play a role through “somatic states” that make organizations more sensitive to the rational variables. In addition to presenting a novel approach for predicting organizational decisions on churn, this paper offers theoretical and managerial insights as well as opportunities for future research at the intersection of behavioral economics and predictive analytics for decision-making.

Keywords: Organizational Decision Analytics, B2B Service Operations, Churn, Service Quality, Decision-Making, Rationality, Bounded Rationality, Heuristics, Adaptive Toolbox, Somatic States

Suggested Citation

Barfar, Arash and Padmanabhan, Balaji and Hevner, Alan, Applying Behavioral Economics in Predictive Analytics for B2B Churn: Findings from Service Quality Data (November 21, 2016). Available at SSRN: https://ssrn.com/abstract=2874045 or http://dx.doi.org/10.2139/ssrn.2874045

Arash Barfar (Contact Author)

University of Nevada, Reno - College of Business Administration ( email )

Reno, NV 89557-0016
United States

Balaji Padmanabhan

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

Alan Hevner

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States
813-974-6753 (Phone)

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