Optimal Effort in Consumer Choice: Theory and Experimental Evidence for Binary Choice
AbstractThis paper develops a theoretical model of optimal effort in consumer choice.The model extends previous consumer choice models in that the consumer not only chooses a product, but also decides how much effort to apply to a given choice problem.The model yields a unique optimal level of effort, which depends on the consumer's cost of effort, the expected utility gain of a correct choice, and the complexity of the choice set.We show that the relationship between effort and cost of effort is negative, whereas the relationships between effort and product utility difference and choice task complexity are undetermined.To resolve this theoretical ambiguity and to explore our model empirically, we investigate the relationships between effort and cost of effort, product utility difference and choice task complexity using data from a conjoint choice study of two-alternative consumer restaurant choices.Response time is used as a proxy for effort and consumer involvement measures capture individual differences in (relative) cost of effort and perceived complexity.Effort is explained using the (estimated) utility difference between alternatives, the number of elementary information processes (EIP's) required to solve the choice problem optimally and respondent specific cost of effort and complexity perceptions.The predictions of the theoretical model are supported by our empirical findings.Response time increases with lower cost of effort and greater perceived complexity (i.e. higher involvement).We find that across the range of choice tasks in our survey, effort increases linearly with smaller product utility differences and greater choice task complexity.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2001-51.
Date of creation: 2001
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consumer choice; bounded rationality;
Find related papers by JEL classification:
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-09-10 (All new papers)
- NEP-DCM-2001-09-10 (Discrete Choice Models)
- NEP-EXP-2001-09-10 (Experimental Economics)
- NEP-MIC-2001-09-10 (Microeconomics)
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