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Test for the real option in consumer behavior

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  • Li, Eric A.L.

Abstract

Consumers become indecisive when facing too many choices. Economic analysis suggests that when a decision involves uncertain outcome, can be delayed and is irreversible, there will be a real option in the cost–benefit analysis. For example, the option to keep alive a consumer's purchasing decision has a significant value. It allows the consumer to take advantage of any future advantageous deals while avoiding the bad choices. This renders the consumer more hesitant. When a consumer decides to exercise his buying decision, he demands a compensation for the loss of this option. Hence, the benefits of a purchase must be over and above its costs by a wide margin (the option value). Data from a survey at a Turkish university on hypothetical purchase decisions confirmed the existence of this real option. We conclude with marketing policy recommendations and future research directions. Connection to the Prospect Theory is briefly explored.

Suggested Citation

  • Li, Eric A.L., 2014. "Test for the real option in consumer behavior," Research in Economics, Elsevier, vol. 68(1), pages 70-83.
    • Handle: RePEc:eee:reecon:v:68:y:2014:i:1:p:70-83
    DOI: 10.1016/j.rie.2013.11.004
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    References listed on IDEAS

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