Crosetto, Paolo and Gaudeul, Alexia (2012): Do consumers prefer offers that are easy to compare? An experimental investigation.
Download (342kB) | Preview
Abstract Consumers make mistakes when facing complex purchasing decision problems but if at least some consumers disregard any offers that is difficult to compare with others then firms will adopt common ways to present their offers and thus make choice easier. We design an original experiment to identify consumers’ choice heuristics in the lab. Subjects are asked to choose from menus of offers and we measure the extent to which they favor those offers that are easy to compare with others in the menu. A sufficient number of subjects do so with sufficient intensity for offers presented in common terms to generate higher revenues than offers that are expressed in an idiosyncratic way.
|Item Type:||MPRA Paper|
|Original Title:||Do consumers prefer offers that are easy to compare? An experimental investigation|
|Keywords:||Bounded Rationality; Cognitive Limitations; Standards; Consumer Choice; Experimental Economics; Heuristics; Pricing Formats; Spurious Complexity|
|Subjects:||D - Microeconomics > D1 - Household Behavior and Family Economics > D18 - Consumer Protection
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C25 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions ; Probabilities
|Depositing User:||Dr Alexia Gaudeul|
|Date Deposited:||08 Feb 2012 16:15|
|Last Modified:||16 Jan 2017 01:43|
Adams, S. (1997). The Dilbert Future. HarperCollins.
Agarwal, S., G. Amromin, I. Ben-David, S. Chomsisengphet, and D. D. Evanoff (2010). Learning to cope: Voluntary financial education and loan performance during a housing crisis. American Economic Review 100(2), 495–500.
Agarwal, S. and B. Mazumder (2010). Cognitive abilities and household financial decision making. Working Paper 2010-16, Federal Reserve Bank of Chicago.
Ariely, D. (2008). Predictably Irrational. HarperCollins.
Ayal, A. (2011). Harmful freedom of choice: Lessons from the cellphone market. Law and Contemporary Problems 74, 91–133.
Bar-Gill, O. and R. Stone (2009). Mobile misperceptions. Harvard Journal of Law & Technology 23(1), 49–118.
Berndt, E. K., B. H. Hall, R. E. Hall, and J. A. Hausman (1974). Estimation and inference in nonlinear structural models. Annals of Economic and Social Measurement 3(4), 653–655.
Camerer, C., S. Issacharoff, G. Loewenstein, T. O’Donoghue, and M. Rabin (2003). Regulation for conservatives: Behavioral economics and the case for "asymmetric paternalism". University of Pennsylvania Law Review 151(3), pp. 1211–1254.
Carlin, B. I. (2009,March). Strategic price complexity in retail financial markets. Journal of Financial Economics 91(3), 278–287.
Chioveanu, I. and J. Zhou (2009). Price competition and consumer confusion. MPRA PaperNo. 17340.
Choi, J. J., D. Laibson, and B. C. Madrian (2010). Why does the law of one price fail? An experiment on index mutual funds. Review of Financial Studies 23(4), 1405–1432.
DellaVigna, S. and U. Malmendier (2006, June). Paying not to go to the gym. American Economic Review 96(3), 694–719.
Eaton, J.W. (2002). GNU OctaveManual. Network Theory Limited.
Ellison, G. (2005, May). A model of add-on pricing. The Quarterly Journal of Economics 120(2), 585–637.
Ellison, G. (2006). Bounded rationality in industrial organization. In T. P. Richard Blundell, Whitney K. Newey (Ed.), Advances in economics and econometrics: theory and applications. Ninth World Congress of the Econometric Society, Volume 2. Cambridge University Press.
Ellison, G. and S. F. Ellison (2009). Search, obfuscation, and price elasticities on the Internet. Econometrica 77(2), 427–452.
Freedman, D. H. (2010). Wrong: Why experts keep failing us. Little, Brown and Company.
Friedman,D. (1998). Monty Hall’s three doors: Construction and deconstruction of a choice anomaly. The American Economic Review 88(4), 933–946.
Fudenberg, D. and D. K. Levine (1998). The Theory of Learning in Games. MIT Press.
Gabaix, X. and D. Laibson (2006). Shrouded attributes, consumer myopia, and information suppression in competitive markets. The Quarterly Journal of Economics 121(2), 505–540.
Garrod, L., M. Hviid, G. Loomes, and C. W. Price (2008). Assessing the effectiveness of potential remedies in consumer markets. Report 998, Office of Fair Trading.
Gaudeul, A. and R. Sugden (2007). Spurious complexity and common standards in markets for consumer goods. Working Paper 07-20, Centre for Competition Policy, University of East Anglia.
Gaudeul, A. and R. Sugden (2011). Spurious complexity and common standards in markets for consumer goods. Economica. Forthcoming.
Gigerenzer, G. and H. Brighton (2009). Homo Heuristicus: Why biased minds make better inferences. Topics in Cognitive Science 1, 107–143.
Gigerenzer, G. and D. G. Goldstein (1999). Betting on one good reason: The take the best heuristic. In G. Gigenrenzer, P. M. Todd, and The ABC Research Group (Eds.), Simple heuristics that make us smart, Chapter 4, pp. 75–95. Oxford University Press.
Greene, W. H. and D. A. Hensher (2003). A latent class model for discrete choice analysis: Contrasts with mixed logit. Transportation Research Part B:Methodological 37(8), 681 – 698.
Hole, A. R. (2007). Fitting mixed logit models by using maximum simulated likelihood. The Stata Journal 7(3), 388–401.
Huber, J. and C. Puto (1983). Market boundaries and product choice: Illustrating attraction and substitution effects. Journal of Consumer Research 10(1), 31–41.
Huck, S. and B. Wallace (2010). The impact of price frames on consumer decision making. Report 1226, Office of Fair Trading.
Iyengar, S. S., G. Huberman, and W. Jiang (2004). How much choice is too much?: Contributions to 401(k) retirement plans. Pension design and structure: New lessons from behavioral finance 401, 83–95.
Iyengar, S. S. and M. R. Lepper (2000). When choice is demotivating: Can one desire too much of a good thing? Journal of Personality and Social Psychology 79, 995–1006.
Kalayci, K. and J. Potters (2011). Buyer confusion and market prices. International Journal of Industrial Organization 29(1), 14 – 22. Special Issue: Experiments in Industrial Organization.
Krider, R. E., P. Raghubir, and A. Krishna (2001). Pizzas: pi or square? Psychophysical biases in area comparisons. Marketing Science 20(2), 405–425.
Lusardi, A. (2008). Financial literacy: An essential tool for informed consumer choice? Working Paper 14084, National Bureau of Economic Research.
Miravete, E. J. (2003). Choosing the wrong calling plan? Ignorance and learning. American Economic Review 93(1), 297–310.
Miravete, E. J. (2011). Competition and the use of foggy pricing. American Economic Journal - Microeconomics. Forthcoming.
Morwitz, V., E. Greenleaf, and E. J. Johnson (1998). Divide and prosper: Consumers’ reaction to partitioned prices. Journal of Marketing Research 35, 453–463.
Nunes, J. C. (2000). A cognitive model of people’s usage estimations. Journal of Marketing Research 37(4), 397–409.
Piccione, M. and R. Spiegler (2010). Price competition under limited comparability. Working paper, LSE, Tel Aviv University and UCL.
Shestakova, N. (2011). Understanding consumers’ choice of pricing schemes. Working paper, University of Vienna.
Simon, H. A. (1955). A behavioral model of rational choice. The Quarterly Journal of Economics 69(1), 99–118.
Spiegler, R. (2011). Bounded rationality and industrial organization. Oxford University Press.
StataCorp (2009). Stata Statistical Software: Release 11. College Station, TX: StataCorp LP.
Sugden, R. (1986). The Economics of Rights, Cooperation and Welfare. Blackwell.
Sugden, R. (1989). Spontaneous order. The Journal of Economic Perspectives 3(4), 85–97.
Sugden, R. (2004). The opportunity criterion: Consumer sovereignty without the assumption of coherent preferences. American Economic Review 94(4), 1014–1033.
Thaler, R. H. and C. R. Sunstein (2008). Nudge. Yale University Press.
Train, K. (2003). Discrete choice methods with simulation. Cambridge: Cambridge University Press.
van Rossum, G. (1995, April). Python reference manual. CWI Report CS-R9525.
Viswanathan, M., J. A. Rosa, and J. E. Harris (2005). Decision making and coping of functionally illiterate consumers and some implications for marketing management. Journal of Marketing 69, 15–31.
Wilson, C. M. and C. W. Price (2010). Do consumers switch to the best supplier? Oxford Economic Papers.
Zeithaml, V. A. (1982). Response to in-store price information environments. The Journal of Consumer Research 8(4), 357–369.