An Experimental Study of the Nature of Consumer Expectations
Although important both theoretically and practically, the nature of consumer economic expectation formation has been little studied, particularly by psychologists. The most relevant previous research suggests that expectations are based on a heuristic that results in them being significantly biased. Further, relevant indicator series are poorly utilized. However, this earlier research used a task lacking in potentially important features of the real world, and this may have impaired performance. In the current experiment, participants received a more ecologically-valid task. Although there was still evidence of heuristic use, leading to suboptimal performance and bias, this performance was significantly better than anticipated from previous research, particularly regarding use of indicator series. However, when a strong trend in the criterion series allowed accurate forecasting without consideration of indicators, they were little used. I conclude that expectations are formed by first extrapolating the criterion series and only if that works poorly is other relevant information considered. Thus consumers appear to trade-off accuracy against effort, such that more effort is expended only when some threshold of acceptable performance fails to be reached.
|Date of creation:||01 Jan 2010|
|Date of revision:|
|Contact details of provider:|| Postal: Durham University Business School, Mill Hill Lane, Durham DH1 3LB, England|
Phone: +44 (0)191 334 5200
Fax: +44 (0)191 334 5201
Web page: http://www.dur.ac.uk/business
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Katona, George, 1974. " Psychology and Consumer Economics," Journal of Consumer Research, Oxford University Press, vol. 1(1), pages 1-8, June.
When requesting a correction, please mention this item's handle: RePEc:dur:durham:2011_05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (IT Office)
If references are entirely missing, you can add them using this form.