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Does Relative Thinking Exist In Real-World Situations? A Field Experiment With Bagels And Cream Cheese

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  • Ofer Azar

    ()
    (Department of Business Administration, Guilford Glazer School of Business and Management, Ben- Gurion University of the Negev)

Abstract

Many experiments show that consumers consider relative price differences even when only absolute price differences are relevant from an economic perspective, a phenomenon that was denoted "relative thinking." These experiments, however, were conducted using hypothetical questions. To test whether the relative thinking bias also exists in real-world situations, a field experiment where subjects could purchase either a bagel or a bagel with cream cheese was conducted. The monetary addition for the cream cheese was kept constant ($0.20) in both treatments, but the bagel's price varied ($0.05 in one treatment and $0.30 in the other). Relative thinking then implies that more people should add the cream cheese when the bagel's price is higher, because the relative price increase for the cream cheese is then smaller. However, the results did not document any relative thinking – more people (in percentage of those who purchase) added the cream cheese when the bagel's price was lower (the difference between the treatments, however, was not statistically significant). A replication of the experiment as a hypothetical-scenario experiment did document relative thinking, suggesting that introduction of financial incentives might alleviate relative thinking.

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File URL: http://www.ec.bgu.ac.il/monaster/admin/papers/0907.pdf
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Bibliographic Info

Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 0907.

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Length: 22 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:bgu:wpaper:0907

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Related research

Keywords: Relative thinking; Experimental economics; Field experiment; Financial incentives; Behavioral economics; Product differentiation.;

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Cited by:
  1. Azar, Ofer H., 2007. "The effect of relative thinking on firm strategy and market outcomes: A location differentiation model with endogenous transportation costs," MPRA Paper 4455, University Library of Munich, Germany.
  2. Azar, Ofer H., 2009. "Do consumers make too much effort to save on cheap items and too little to save on expensive items? experimental results and implications for business strategy," MPRA Paper 20962, University Library of Munich, Germany.

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