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A Rational Reconstruction of the Compromise Effect: Using Market Data to Infer Utilities

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  • Wernerfelt, Birger

Abstract

This article explores the possibility that consumers use market data to make inferences about product utilities. The argument is made by means of an example based on the "compromise effect" found in extant experimental data. This phenomenon is generally looked at as a manifestation of deviations from rationality in choice. However, assuming full rationality, I describe a decision rule that is based on consumers' inferences about their information about their own relative tastes. Through a number of examples, I will argue that consumers often use this or similar decision rules to make inferences about utility. I then show that the decision rule may generate compromise effects in experiments and that it may be sustainable. The compromise effect could therefore be seen as preliminary evidence that consumers make such inferences. Copyright 1995 by the University of Chicago.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Consumer Research.

Volume (Year): 21 (1995)
Issue (Month): 4 (March)
Pages: 627-33

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Handle: RePEc:ucp:jconrs:v:21:y:1995:i:4:p:627-33

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Web page: http://www.journals.uchicago.edu/JCR/

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Cited by:
  1. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Consumer Choice," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 803 - 843.
  2. Caspar Chorus & Michel Bierlaire, 2013. "An empirical comparison of travel choice models that capture preferences for compromise alternatives," Transportation, Springer, vol. 40(3), pages 549-562, May.
  3. Catherine Tucker & Juanjuan Zhang, 2008. "Decomposing the Congestion Effect and the Cross-Platform Effect in Two-Sided Networks: A Field Experiment," Working Papers 08-12, NET Institute, revised Oct 2008.
  4. Holger Müller & Eike Kroll & Bodo Vogt, 2012. "Do real payments really matter? A re-examination of the compromise effect in hypothetical and binding choice settings," Marketing Letters, Springer, vol. 23(1), pages 73-92, March.
  5. Cunningham, Thomas, 2013. "Biases and Implicit Knowledge," MPRA Paper 50292, University Library of Munich, Germany.
  6. Jonathan Levav & Mark Heitmann & Andreas Herrmann & Sheena S. Iyengar, 2010. "Order in Product Customization Decisions: Evidence from Field Experiments," Journal of Political Economy, University of Chicago Press, vol. 118(2), pages 274-299, 04.
  7. Chorus, Caspar G. & Koetse, Mark J. & Hoen, Anco, 2013. "Consumer preferences for alternative fuel vehicles: Comparing a utility maximization and a regret minimization model," Energy Policy, Elsevier, vol. 61(C), pages 901-908.
  8. J�rg Rieskamp & Jerome R. Busemeyer & Barbara A. Mellers, 2006. "Extending the Bounds of Rationality: Evidence and Theories of Preferential Choice," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 631-661, September.
  9. Chorus, Caspar G. & Annema, Jan Anne & Mouter, Niek & van Wee, Bert, 2011. "Modeling politicians' preferences for road pricing policies: A regret-based and utilitarian perspective," Transport Policy, Elsevier, vol. 18(6), pages 856-861, November.

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