Negative recency, randomization device choice, and reduction of compound lotteries

We report an experiment in which subjects are not indifferent between real-money lotteries implemented with randomization devices that are equivalent under the Reduction Axiom. Instead choice behavior is consistent with subjective distortion of conditional probability, and this persists in treatment conditions that control for (i) computational limitations and (ii) possible confounding by ratio bias. --reduction of compound lotteries,negative recency effect,gambler's fallacy,law of small numbers,randomization devices,instruments and materials,design of experiments,St. Petersburg paradox

Fact or Artifact Does the compromise effect occur when subjects face real consequences of their choices?

This study investigates context effects in general and the compromise effect in particular. It is argued that earlier research in this area lacks realism which is a major drawback to research conclusions and stated management implications. The importance of this issue is stressed by previous research showing that behavioral anomalies found in hypothetical experimental settings tend to be significantly reduced when real payoff mechanisms are introduced. Therefore, to validate the compromise effect, an enhanced experimental design is presented with participants making choices in the laboratory that are binding. We find that the compromise effect holds for real purchase decisions, and therefore is validated and not an artificial effect in surveys on hypothetical buying decisions. While conclusions and implications for marketing managers derived in previous work assume that context effects hold for real market decisions, the results created by this enhanced design close this gap in marketing literature.choice in context, compromise effect, irrelevant alternatives, hypothetical bias, experimental design

Experimental evidence of context-dependent preferences in risk-free settings

This study investigates context effects in general and the compromise effect in particular. It is argued that earlier research in this area lacks realism, a shortcoming that is a major drawback to research conclusions and stated management implications. The importance of this issue is stressed by previous research showing that behavioral anomalies found in hypothetical experimental settings tend to be significantly reduced when real payoff mechanisms are introduced. Therefore, to validate the compromise effect, an enhanced design is presented with participants making binding purchase decisions in the laboratory. We find that the compromise effect holds for real purchase decisions, and therefore is validated, and is not an artificial effect in surveys on hypothetical buying decisions. While conclusions and implications for marketing managers, derived in previous work assume that context effects hold for real market decisions, the results created by this enhanced design close this gap in the literature. --decision-making,anomalies,irrelevant alternatives,context effects

How Product Assortments Affect Buyer Preferences: Empirical Analysis of the Robustness of the Compromise Effect

Behavioral research revealed that product assortments can influence buyer preferences and affect purchase decisions between options of a product line. In this article, the compromise effect is investigated according to which the share of a product is expected to increase when it is in an intermediate position in an assortment subset. Since most of the previous studies on the compromise effect used artificial designs that lack realism, a limited external validity of experimental findings is to be supposed. This is a drawback, especially when decisions about compositions of real product lines should be supported. Therefore, an enhanced experimental design is presented with subjects making unforced and binding choices between real brands, which is similar to regular purchase decisions. Although results of our studies prove robustness, the magnitude of the compromise effect is significantly reduced in such real marketplace scenarios hence notably influencing predictions of sales and profitability of product lines.Consumer Behavior; Compromise Effect; Consumer Preferences; Assortment Planning; Experimental Design; Choice in Context

How performance based payoffs influence estimates of complex information? An experimental study on quality and precision in estimation tasks

This paper investigates the processing of repeated complex information. The focus of this study is, whether additional information and the introduction of performance-based payoffs have an influence on judgement. Therefore, an experiment is designed to investigate the degree of precision and quality of interval estimates. The data shows that providing additional information decreases the precision of stated estimates, while it improves its quality. The same result is obtained, when performance-based payoffs are introduced to an otherwise hypothetical decision environment. That means, while the variation in the treatment variables increase the quality of the estimate, the precision as a reflection of the decision makers confidence is reduced. --interval estimates,uncertainty,judgmental estimation,repeated information,hypothetical versus payoffs,experiment

When Judgments and Preferences Fail to Conform: Research on Preference Reversals for Product Purchases

In this paper, the preference reversal phenomenon known from risk research is investigated according to which subjects prefer gamble A over B in competitive decisions although they reveal higher valuations in terms of a cash equivalent (CE) or a willingness to pay (WTP) for the latter when gambles are assessed separately in monadic judgments. In contrast to the experimental settings of research on risky choices, our studies observed unforced and binding purchase decisions of experienced consumers between real products in natural shopping environments. Results confirm robustness of preference reversals in risk-free purchase decisions indicating that orderings of product preferences reverse significantly between evaluations in monadic and competitive designs. While recent pricing research has been largely focused on monadic designs and suggested BDM mechanisms or second-price auctions for elicitations of consumers’ true willingness to pay, results of our studies indicate a substantial discrepancy between preference orders based on monadic judgments and preferences that consumers reveal in competitive purchase decisions.Preference Reversals, Willingness to Pay, Monadic Designs, Competitive Designs, Pricing Research, Procedure Invariance

The St. Petersburg Paradox despite risk-seeking preferences. An experimental study

The St. Petersburg Paradox is one of the oldest violations of expected utility theory. Thus far, explanations of the paradox aim at small probabilities being perceived as zero and the boundedness of utility. This paper provides experimental results showing that neither risk attitudes nor perception of small probabilities explain the paradox. We find that even in situations where subjects are risk-seeking, the St. Petersburg Paradox exists. This indicates that the paradox lies at the very core of human decision-making processes and cannot be explained by the parameters discussed in previous research so far

WHEN JUDGMENTS AND PREFERENCES FAIL TO CONFORM: RESEARCH ON PREFERENCE REVERSALS FOR PRODUCT PURCHASES

In this paper, the preference reversal phenomenon known from risk research is investigated according to which subjects prefer gamble A over B in competitive decisions although they reveal higher valuations in terms of a cash equivalent (CE) or a willingness to pay (WTP) for the latter when gambles are assessed separately in monadic judgments. In contrast to the experimental settings of research on risky choices, our studies observed unforced and binding purchase decisions of experienced consumers between real products in natural shopping environments. Results confirm robustness of preference reversals in risk-free purchase decisions indicating that orderings of product preferences reverse significantly between evaluations in monadic and competitive designs. While recent pricing research has been largely focused on monadic designs and suggested BDM mechanisms or second-price auctions for elicitations of consumers' true willingness to pay, results of our studies indicate a substantial discrepancy between preference orders based on monadic judgments and preferences that consumers reveal in competitive purchase decisions

How Product Assortments Affect Buyer Preferences: Empirical Analysis of the Robustness of the Compromise Effect

Behavioral research revealed that product assortments can influence buyer preferences and affect purchase decisions between options of a product line. In this article, the compromise effect is investigated according to which the share of a product is expected to increase when it is in an intermediate position in an assortment subset. Since most of the previous studies on the compromise effect used artificial designs that lack realism, a limited external validity of experimental findings is to be supposed. This is a drawback, especially when decisions about compositions of real product lines should be supported. Therefore, an enhanced experimental design is presented with subjects making unforced and binding choices between real brands, which is similar to regular purchase decisions. Although results of our studies prove robustness, the magnitude of the compromise effect is significantly reduced in such real marketplace scenarios hence notably influencing predictions of sales and profitability of product lines

Fact or Artifact: Does the compromise effect occur when subjects face real consequences of their choices?

This study investigates context effects in general and the compromise effect in particular. It is argued that earlier research in this area lacks realism which is a major drawback to research conclusions and stated management implications. The importance of this issue is stressed by previous research showing that behavioral anomalies found in hypothetical experimental settings tend to be significantly reduced when real payoff mechanisms are introduced. Therefore, to validate the compromise effect, an enhanced experimental design is presented with participants making choices in the laboratory that are binding. We find that the compromise effect holds for real purchase decisions, and therefore is validated and not an artificial effect in surveys on hypothetical buying decisions. While conclusions and implications for marketing managers derived in previous work assume that context effects hold for real market decisions, the results created by this enhanced design close this gap in marketing literature