Do Consumers Make Too Much Effort to Save on Cheap Items and Too Little to Save on Expensive Items
Experimental Results and Implications for Business Strategy
Bibliographic Data
| ID | 3758130 |
|---|---|
| Authors | Ofer H Azar (0000-0003-0154-327X, Ben-Gurion University of the Negev, Beer Sheva, Israel, corresponding author) |
| Year | 2011 |
| Volume | 55 |
| Issue | 8 |
| Pages | 1077-1098 |
| Publication date | 2011-08-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | American Behavioral Scientist (JOURNAL) |
| Journal identifiers | ISSN: 0002-7642 • E-ISSN: 1552-3381 |
| Publisher | SAGE Publications Inc (PUBLISHER) |
| DOI | 10.1177/0002764211407902 |
| OpenAlex | W3124929060 |
| Language | EN |
| Citations received | 3 |
| References cited | 21 |
The article presents an experiment that illustrates a behavior denoted "relative thinking." Subjects in the experiment revealed the minimal price difference for which they were willing to spend 20 minutes and go to a cheaper store. Five goods and nine prices were used in a between-subjects design. Subjects showed striking positive correlation between the good's price and their valuation of their time as it was reflected in their decisions. The experiment suggests that subjects think about both the relative and the absolute price differences, even though according to economic theory they should only consider the absolute price difference. Quantifying the effect suggests that consumers' valuation of their time is approximately proportional to the square root of the price of the good they want to purchase. Studying economics courses seems to mitigate relative thinking. Several alternative explanations for the observed behavior are suggested and discussed, but the conclusion is that only the relative thinking explanation can account for the experimental results. Finally, several implications of relative thinking for business strategy are discussed
Absolute (philosophy) · Economics · Microeconomics · Relative price · Valuation (finance) · Accounting · Decision-Making and Behavioral Economics · Economic theories and models · Experimental Behavioral Economics Studies
Rational Choice
Reasons for Framing Effects
Mental Accounting and Consumer Choice
Loss Aversion in Riskless Choice
Prospect Theory
Toward a positive theory of consumer choice
The Framing of Decisions and the Psychology of Choice
Do people think about absolute or relative price differences when choosing between substitute goods
The effect of relative thinking on firm strategy and market outcomes
Equilibrium Price Dispersion in Retail Markets for Prescription Drugs
Market Price Variation, Perceived Price Variation, and Consumers' Price Search Decisions for Durable Goods
Mental Accounting and Changes in Price
| Unique citing works | 3 |
|---|---|
| Citations per year | 0,2 |
| Citation span | 2011 - 2023 (13) |
| Citation velocity | historical |
| Highly cited | No |
| Citation types | Neutral: 3 |