Knowledge that Transforms

procedure in exchange for $10.00. The procedure involves seven steps (summarized in Table WA1). In each step, participants are sequentially presented with stimuli on the computer screen, and their task is to quickly and accurately judge whether the focal stimulus relates to one concept (or pair of concepts) vs. another. In our experiment, the concepts were “North, ” “South, ” “Up, ” and “Down. ” The stimuli were words or symbols that were obviously related to one of these concepts (described below). Each stimulus appeared on the screen until the participant responded and the next stimulus appeared immediately thereafter. The critical comparison in the IAT task involves trials on which participants have to categorize stimuli as belonging to one of a pair of concepts. For example, in our task, one subset of the critical trials asked participants to categorize the stimuli as being related to either “North or Up ” vs. “South or Down ” while another subset of critical trials involved categorizing the stimuli as being related to either “South or Up ” vs. “North or Down. ” If people associate “North ” with “Up ” and “South ” with “Down, ” then they should be faster to categorize the stimuli when the North/Up concepts are paired than when the South/Up concepts are paired. Our IAT procedure was standard (Greenwald, McGhee, and Schwartz 1998). For approximately half of the participants (n = 17), the ordering of the procedure was as follows. In the first step, participants quickly categorized words as belonging to the

The conventional wisdom in economic theory holds that switching costs make markets less competitive. This article challenges this claim. The authors formulate an empirically realistic model of dynamic price competition that allows for differentiated products and imperfect lock-in. They calibrate this model with data from frequently purchased packaged goods markets. These data are ideal in the sense that they have the necessary variation to identify switching costs separately from consumer heterogeneity. Equally important, consumers exhibit inertia in their brand choices, a form of psychological switching cost. This makes the results applicable to the broad range of products that are distinctly identified (i.e., branded) rather than just to products for which there is a product adoption cost or explicit switching fee. In the simulations, prices are as much as 18% lower with than without switching costs. More important, equilibrium prices do not increase even in the presence of switching costs that are of the same order of magnitude as product price.

The authors examine an important anomaly in investment behavior - namely, the tendency to fall prey to the effects of contextual and presentation biases, which emerge when people make different decisions as a function of how information is presented to them. They also identify an important factor that moderates these effects. The results from four studies show that investors with a stronger tendency to engage in pre-decision outcome elaboration are less susceptible to various contextual and presentation biases and are more likely to make consistent investment choices. Furthermore, the authors find that encouraging pre-decision elaboration on both the potential benefits and the potential risks of investing helps investors who tend not to engage in such elaboration become less influenced by peripheral cues, such as information framing and presentation mode. The findings offer implications for decision research and for the design, presentation, and communication of financial products.

According to a thought experiment described by Aristotle, a person “who, though exceedingly hungry and thirsty, and both equally, yet being equidistant from food and drink, is therefore bound to stay where he is ” might consequently waste away for want of food and drink (Stocks 1922). The problem of choosing between two equally desirable options is analogous to the trade-off problem a decision maker faces when confronted with two equally attractive options. Choosing from such a choice set is difficult because choosing one option may involve giving up another attractive option, and the trade-off difficulty the decision maker experiences may result in conflict in his or her mind, which can generate negative affect. The introduction of a dominated alternative (the “decoy”) into such a choice set may mitigate the problem by allowing the decision maker

A substantial body of theoretical literature indicates that network effects may hinder the entry of higher-quality products into markets in which network effects are impor tant. However, Tellis, Yin, and Niraj (2009) provide com pelling evidence that, in general, higher-quality offerings win out in software markets after a short time lag. Because software markets are commonly believed to be susceptible to network effects, this finding provides important empiri cal evidence against the hypothesis that network effects impede entry. Because Tellis, Yin, and Niraj obtain their results across a large number of product categories and because their analysis holds up across various methods, their evidence that high quality trumps network effects is impressive. However, in the final section of the article, Tellis, Yin, and Niraj are careful to provide a set of limitations for their research. Because I believe that their results must be quali fied in the light of these limitations, I elaborate on some of these in my comment. Because the authors have gone about as far as possible with the data at their disposal, this com ment is intended to stimulate further research on the topic of network effects and quality. Consistent with Tellis, Yin, and Niraj's research objec tives, their conceptual model focuses on the demand side and factors that might affect consumer response, but the supply side is also important. In particular, it is not known whether the firms refrained from developing or marketing products because they judged that network effects were too difficult to overcome. Thus, the results are subject to a sam ple selection problem, in which only products that suppliers believed to be worthy of introduction on the market were selected. Because the sample is limited to cases in which suppliers believed that introducing the product on the mar ket was justified in the face of any network effects, this cre ates an unknown bias toward showing that quality can over come network effects. A related consideration is that suppliers have ways of dealing with network effects or even using them to their advantage. One is to make the higher-quality product com patible with its predecessor, such as making Excel compati ble with Lotus. Another is to arrange to have software bun dled with the sale of new computers, thus forcing its acceptance in the market. For example, a current buyer of a Windows computer must either accept Vista or have some one uninstall this software in favor of an older version, a time-consuming and expensive process. This bundling may have facilitated the adoption of Windows, Word, Excel, Internet Explorer, PowerPoint, AOL, and possibly other software types. Supplier actions to mitigate network effects, such as compatibility and bundling, do not invalidate the general findings in Tellis, Yin, and Niraj's article. Rather, they may help explain how and why network effects can be overcome.

In general, consumers establish a preference for one product early in a decision process. When this preference does not include consideration of product prices, the currently preferred product is called the “benefits leader.” This article proposes that consumers who switch to a cheaper product after learning prices retain a trace of preference for the benefits leader. Retention of the benefits leader is evidenced by the distortion of new information to favor the benefits leader and by greater-than-normative reversion to it. The authors also find that reversion does not occur when the initially leading product (that consumers switch from) is based on a cost savings. This suggests that though consumers retain cognitive elements associated with benefits leaders, they do not retain similar elements associated with leaders based on cost savings.

Marketers often analyze multinomial choice from a set of branded products to learn about demand. Given a set of brands to study, the authors analyze three reasons why choices from strict subsets of the brands can contain more statistical information about demand than choices from all the brands in the study: First, making choices from smaller subsets is easier, so it is possible to use more choice tasks when the choice data come from a choice-based conjoint survey. Second, choices from subsets of brands better identify and more accurately estimate the covariance structure of unobserved utility shocks associated with brands. Third, subsets automatically balance the brand shares when some of the brands are less popular than others. The authors demonstrate these three benefits of subsets using a mixture of analytical results and numerical simulations and provide implications for the design of choice-based conjoint analyses. They find that the optimal subset size depends on the model, the number of b...

Across four studies, including one involving an actual monetary decision, the authors demonstrate that forming a product consideration set by excluding versus including alternatives induces consumers to place more weight on ethical attributes, such as company labor practices and animal testing. This nonnormative difference reflects a compatibility between exclusion and ethics, and it holds regardless of attribute framing or consumer emotion. The authors also find that consumers judge others’ behavior more negatively for excluding ethical products than for including ethical products. These results have implications for the marketing of ethical products, both specifically (e.g., it is important to encourage exclusion modes) and generally (e.g., the failure to consider ethical products may reflect seemingly minor contextual issues guiding the decision process and not consumer disinterest in ethical issues).