Experimental evidence of context-dependent preferences in risk-free settings
AbstractThis 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. --
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Bibliographic InfoPaper provided by Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering in its series Working Paper Series in Economics with number 12.
Date of creation: 2010
Date of revision:
decision-making; anomalies; irrelevant alternatives; context effects;
Find related papers by JEL classification:
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-27 (All new papers)
- NEP-EXP-2010-11-27 (Experimental Economics)
- NEP-UPT-2010-11-27 (Utility Models & Prospect Theory)
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