IDEAS home Printed from https://ideas.repec.org/a/kap/jrisku/v70y2025i1d10.1007_s11166-024-09442-6.html
   My bibliography  Save this article

Consumer misperceptions and product differentiation

Author

Listed:
  • Oren Bar-Gill

    (Harvard Law School)

  • Cass R. Sunstein

    (Harvard Law School)

Abstract

In the current era, product differentiation is increasing; it is often fueled by big data and artificial intelligence (AI). Whereas product differentiation is generally welfare enhancing when consumers are informed and fully rational, such differentiation might reduce welfare when consumers suffer from misperceptions, either because of a lack of information or because of behavioral biases. We show that the positive and normative implications of product differentiation depend on whether consumers over or underestimate the benefits from some products. In particular, overestimation of the benefits is a potential source of significant welfare losses. We also study sellers’ incentives to promote, or combat, misperception. Our analysis can inform policymakers who are debating regulation that can make product differentiation more difficult (or easier), especially when the differentiation is instigated by AI algorithms powered by big data.

Suggested Citation

  • Oren Bar-Gill & Cass R. Sunstein, 2025. "Consumer misperceptions and product differentiation," Journal of Risk and Uncertainty, Springer, vol. 70(1), pages 65-87, February.
    • Handle: RePEc:kap:jrisku:v:70:y:2025:i:1:d:10.1007_s11166-024-09442-6
    DOI: 10.1007/s11166-024-09442-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11166-024-09442-6
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11166-024-09442-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jrisku:v:70:y:2025:i:1:d:10.1007_s11166-024-09442-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.