Knowledge that Transforms

We examine how perceived similarity between sequential risks affects individuals' risk-taking intentions. Specifically, in six studies we find that in sequential choice settings individuals exhibit significant positive state dependence in risk-taking preferences, such that they are more likely to take a risk when it is similar to a previously taken risk than when it is dissimilar. For example, if an individual has previously taken a health/safety risk, that individual is more likely to take a second health/safety risk than a second risk that is in the financial domain. Since similarity between risks is malleable and can be determined by situational and contextual variables, we show that we can change subsequent risk-taking intentions in a predictable manner by manipulating similarity through framing. Finally, we establish that increased feelings of self-efficacy and self-signaling through the prior risk-taking experience drive state dependent risk-taking preferences. We further show that the effe...

Prior research has identified product improvement perceptions as critical to consumers' product upgrade decisions (e.g., upgrading to a new iPhone), but little work has examined factors influencing these improvement perceptions. This research shows that drawing consumers' attention to their global self-improvement can increase product improvement judgments and upgrade intentions when self-brand connection is high, a phenomenon the authors refer to as egocentric improvement evaluations. Consistent with egocentric categorization theory, which identifies the self as a dominant reference category in product judgment, the authors demonstrate cognitive drivers of the effect. Specifically, egocentric improvement evaluations are moderated by self-focus, which determines whether the self is an accessible reference category. Furthermore, the authors propose that egocentric improvement evaluations also have a motivational driver: Consumers project their self-improvement onto self-connected brands to satisfy...

Research has shown that possessions have the power to change consumers' self-construal and activate different aspects of the self. Building on this literature, we suggest that the salience of product ownership not only activates the product-related self, but also simultaneously deactivates product-unrelated selves, resulting in impaired performance on tasks unrelated to the activated self. In five experiments, we first elicit feelings of ownership over a product (e.g., a calculator) to activate a product-related identity (e.g., the math self). Participants then engage in a task that is labeled as being a product-related task (e.g., math task) or a product-unrelated task (e.g., visual task). Despite the task being the same, participants in the ownership condition perform worse on a task labeled as product-unrelated than those in the baseline condition. Support for the underlying identity activation process comes from the finding that performance impairment is more likely to hold under conditions o...

In incentive-aligned choice experiments, each decision is realized with some probability prob. In three eye tracking experiments, we study the impact of varying prob from 0 (as in purely hypothetical choices) to 1 (as in real-life choices) on attention, information processing, and choice. Consistent with the bounded rationality literature, we find that as prob increases from 0 to 1, consumers process the choice-relevant information more carefully and more comprehensively. Consistent with the psychological distance literature, we find that as prob increases from 0 to 1, consumers become less novelty seeking and more price sensitive. These findings underscore that even with incentive alignment, preference measurement choice experiments such as choice-based conjoint analysis (CBC) only represent an approximation of real-life choices. While it is not feasible to systematically use questions with high prob in the field, we predict and find that placing a higher probability question (such as an external validity task) at the beginning rather than the end of a questionnaire has a carryover effect on attention and information processing throughout the questionnaire, and impacts preference estimates.

The authors examine how consumers respond to pseudo-free offers—offers that are presented to consumers as free, but that require consumers to make a non-monetary payment (such as completing a survey or providing personal information) in order to receive the “free” good or service. Across six studies, the authors find that consumers are generally just as likely to accept pseudo-free offers (with non-monetary costs) as comparable truly free offers (with no costs), as long as the costs of the pseudo-free offers are below some threshold. Additionally, they find that consumers are significantly more likely to accept pseudo-free offers (with non-monetary costs) than comparable non-free offers (with monetary costs). The authors provide evidence that consumers respond to pseudo-free offers in this way because, in general, consumers generate neutral or positive attributions for why firms make these offers, and these attributions, in turn, lead consumers to perceive the pseudo-free offers as fair. However,...

We present a theory of how consumers evaluate multiple percentage price changes (discounts or surcharges). For example, consider two discounts on a jacket: Take 18% off list price then an additional 12% off. We show consumers weight the two percentages to make evaluations. Furthermore, cues endogenous in the communication of these percentages influence weightings. When two percentages are presented, they can either be presented at the same time (simultaneously) or temporally separated (sequentially), and with a large first or large later percentage ordering. We argue that depending on the presentation mode or ordering, consumers use different processes. While providing practical guidance, this research extends our understanding of anchoring and adjustment. When information is presented simultaneously, individuals anchor on the first piece of information. However, sequential presentation induces surprise. This shifts attention to the latter percentage change, which then serves as the anchor in sub...

The authors examine how perceived similarity between sequential risks affects individuals’ risk-taking intentions. Specifically, in six studies, the authors find that, in sequential choice settings, individuals exhibit significant positive state dependence in risk-taking preferences, such that they are more likely to take a risk when it is similar to a previously taken risk than when it is dissimilar. For example, if an individual has previously taken a health/safety risk, that individual is more likely to take a second health/safety risk than a second risk that is in the financial domain. The authors show that because similarity between risks is malleable and can be determined by situational and contextual variables, subsequent risk-taking intentions can be changed in a predictable manner when similarity is manipulated through framing. The authors establish that increased feelings of self-efficacy and self-signaling through the prior risk-taking experience drive state-dependent risk-taking preferences. The authors further show that the effect of similarity on preferences is not moderated by the outcome received in the prior risk and holds when controlling for individual-level and domain-specific heterogeneity. Taken together, the results demonstrate that the similarity structures that exist between risks have a significant effect on risk-taking preferences in dynamic choice settings.

Companies spend billions of dollars annually on sales force training, often carried out as off-site, multiday training events. However, numerous challenges involved in training an entire sales group forces many retailers to selectively train only a subset of their salespeople. Crucial to know is when selective training can be more effective and what composition of salespeople should be trained to benefit the entire group. This study addresses these questions using data from several stores of a retailer with different sales force training policies (full-, selective-, and no-training [control]). The degree to which salespeople applied a customer relationship-building strategy taught in the training is tracked along with more than 30 store- and salesperson-level covariates and various analyses are performed to correct for selection issues. The authors find that (1) selective training can be highly effective in stores with low performance diversity, (2) training salespeople with diverse tenures helps...

Retailers routinely allow consumers to negotiate a discount off the posted price, especially for big ticket items such as home appliances, furniture, automobiles, and real estate, as well as on online platforms such as Amazon, eBay and Alibaba. The profitability of such a strategy, relative to selling only at posted prices, depends on consumers' willingness to initiate a negotiation and ability to negotiate a discount. In this paper, we incorporate a consumers' decision of whether or not to negotiate into a demand model. The decision to negotiate hinges on how the expected discount from negotiation compares to the magnitude of a non-pecuniary cost that the consumer incurs by initiating the negotiation. This cost has implications for consumer demand and firm profitability; the current study shows how this cost can be non-parametrically identified, separately from consumers' ability to get a discount and marginal utility of income. The application of this model to individual-level data on refrigera...

Gift giving generates high revenues for retailers. It is also marked with significant welfare, or deadweight, loss in that givers tend to pay more than the receivers’ valuation. Previous research has attributed this discrepancy to givers’ inaccurate predictions of the receivers’ preferences. This research demonstrates that reduced price sensitivity is another important source of the deadweight loss: givers use gift prices to signal the importance of their relationship with the receiver. In order to demonstrate this mechanism, the authors develop a new Bayesian gift-choice model that captures both preference predictions as well as the signaling value of price. The model is estimated on two choice-based conjoint studies for gift giving that allow for the manipulation of the giver's uncertainty about the receiver's preferences. Both studies show the strong signaling value of price, especially when givers are uncertain about receivers’ preferences. Decomposition of the deadweight loss shows that the signaling value of price is an important source of welfare loss, especially in markets with heterogeneous prices. These findings have key implications for the gift industry.