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Fact or Artifact Does the compromise effect occur when subjects face real consequences of their choices?

  • Holgar Müller

    ()

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Eike Benjamin Kroll

    ()

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Bodo Vogt

    ()

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

This study investigates context effects in general and the compromise effect in particular. It is argued that earlier research in this area lacks realism which 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 experimental design is presented with participants making choices in the laboratory that are binding. We find that the compromise effect holds for real purchase decisions, and therefore is validated and 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 marketing literature.

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File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2009_Dateien/2009_09.pdf
File Function: First version, 2009
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Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 09009.

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Length: 19 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:mag:wpaper:09009
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  1. Loomes, Graham & Starmer, Chris & Sugden, Robert, 1991. "Observing Violations of Transitivity by Experimental Methods," Econometrica, Econometric Society, vol. 59(2), pages 425-39, March.
  2. James J. Choi & David Laibson & Brigitte C. Madrian, 2007. "Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect," NBER Working Papers 13656, National Bureau of Economic Research, Inc.
  3. Huber, Joel & Puto, Christopher, 1983. " Market Boundaries and Product Choice: Illustrating Attraction and Substitution Effects," Journal of Consumer Research, University of Chicago Press, vol. 10(1), pages 31-44, June.
  4. Grether, David M & Plott, Charles R, 1979. "Economic Theory of Choice and the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 69(4), pages 623-38, September.
  5. Bohm, Peter, 1994. "Time Preference and Preference Reversal among Experienced Subjects: The Effects of Real Payments," Economic Journal, Royal Economic Society, vol. 104(427), pages 1370-78, November.
  6. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December.
  7. Charles A. Holt & Susan K. Laury, 2005. "Risk Aversion and Incentive Effects: New Data without Order Effects," American Economic Review, American Economic Association, vol. 95(3), pages 902-912, June.
  8. Francisca Sinn & Sandra Milberg & Leonardo Epstein & Ronald Goodstein, 2007. "Compromising the compromise effect: Brands matter," Marketing Letters, Springer, vol. 18(4), pages 223-236, December.
  9. John Beshears & James Choi & David Laibson & Brigitte Madrian, 2007. "How Are Preferences Revealed?," Levine's Bibliography 122247000000001760, UCLA Department of Economics.
  10. Robin Cubitt & Chris Starmer & Robert Sugden, 2001. "Discovered preferences and the experimental evidence of violations of expected utility theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 8(3), pages 385-414.
  11. James Murphy & P. Allen & Thomas Stevens & Darryl Weatherhead, 2005. "A Meta-analysis of Hypothetical Bias in Stated Preference Valuation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 30(3), pages 313-325, 03.
  12. Huber, Joel & Payne, John W & Puto, Christopher, 1982. " Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis," Journal of Consumer Research, University of Chicago Press, vol. 9(1), pages 90-98, June.
  13. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  14. Ian Bateman & Brett Day & Graham Loomes & Robert Sugden, 2007. "Can ranking techniques elicit robust values?," Journal of Risk and Uncertainty, Springer, vol. 34(1), pages 49-66, February.
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