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Why more can be less: An inference-based explanation for hyper-subadditivity in bundle valuation

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  • Popkowski Leszczyc, Peter T.L.
  • Pracejus, John W.
  • Shen, Yingtao

Abstract

We conceptualize, develop, and test a multiple-item bundle valuation model through which decision makers are able to make inferences about the value of uncertain items based on the value of certain items. Results of four experiments indicate that bundling a low-value certain item with a high-value uncertain item, which are not substitutes, results in a bundle valuation lower than the value of the uncertain item alone. We refer to this highly unexpected and previously unexplained phenomenon as "hyper-subadditivity." In addition we find that bundling a high-value certain item with a low-value uncertain item leads to superadditivity, even though the items are not complements. Hence, we find that when two objects are bundled together, and one has a more certain value, decision makers use the value of the certain item to infer the value of the less certain item. They might infer that the other (less certain) object must be worth an amount similar to the item with which they are paired. We further demonstrate that reducing uncertainty eliminates these effects, and that direct value inferencing (not simple numeric priming, nor inferences about quality) is the most likely mechanism driving these effects.

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  • Popkowski Leszczyc, Peter T.L. & Pracejus, John W. & Shen, Yingtao, 2008. "Why more can be less: An inference-based explanation for hyper-subadditivity in bundle valuation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 105(2), pages 233-246, March.
  • Handle: RePEc:eee:jobhdp:v:105:y:2008:i:2:p:233-246
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    References listed on IDEAS

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    Cited by:

    1. Ernan Haruvy & Peter T. L. Popkowski Leszczyc, 2015. "The Loser’s Bliss in Auctions with Price Externality," Games, MDPI, Open Access Journal, vol. 6(3), pages 1-23, July.
    2. Peter T. L. Popkowski Leszczyc & Michael H. Rothkopf (deceased), 2010. "Charitable Motives and Bidding in Charity Auctions," Management Science, INFORMS, vol. 56(3), pages 399-413, March.
    3. Amar Cheema & Peter Leszczyc & Rajesh Bagchi & Richard Bagozzi & James Cox & Utpal Dholakia & Eric Greenleaf & Amit Pazgal & Michael Rothkopf & Michael Shen & Shyam Sunder & Robert Zeithammer, 2005. "Economics, Psychology, and Social Dynamics of Consumer Bidding in Auctions," Marketing Letters, Springer, vol. 16(3), pages 401-413, December.
    4. Ernan Haruvy & Peter Popkowski Leszczyc & Octavian Carare & James Cox & Eric Greenleaf & Wolfgang Jank & Sandy Jap & Young-Hoon Park & Michael Rothkopf, 2008. "Competition between auctions," Marketing Letters, Springer, vol. 19(3), pages 431-448, December.
    5. Gerrit Frackenpohl & Gert Pönitzsch, 2013. "Bundling Public with Private Goods," Bonn Econ Discussion Papers bgse05_2013, University of Bonn, Germany.
    6. Sheikhzadeh, Mehdi & Elahi, Ehsan, 2013. "Product bundling: Impacts of product heterogeneity and risk considerations," International Journal of Production Economics, Elsevier, vol. 144(1), pages 209-222.
    7. Christine L. Exley & Judd B. Kessler, 2017. "The Better is the Enemy of the Good," Harvard Business School Working Papers 18-017, Harvard Business School.
    8. Christine L. Exley & Judd Kessler, 2017. "The Better is the Enemy of the Good," Working Papers 2017-068, Human Capital and Economic Opportunity Working Group.

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