There are Free Lunches Statement of Intentions
There are Free Lunches: Behavioral Clues to Live Happy in the Economic World is a blog that intends to present updated and relevant information about the "hidden" and only recently uncovered dimensions of the economic science: the behavioral factors. With this blog we intend to promote in Europe and in the rest of the World, the top research articles and perspectives on behavioral economics, decision making, consumer behavior, and general behavioral science. We aim to be followed by journalists, academics, managers, civil servants, and everyone who wishes to improve their daily interaction with the economic world and consequently, their lives' happiness.
Tuesday, 7 June 2011
Principle 7: Beware of Comparison Shopping
Each month, as many as twenty million people visited bizrate.com, a top comparison-shopping website that entices consumers with the slogan, “Search. Compare. Conquer.” Sites like this one offer consumers the opportunity to search for everything from mattresses and remote control cars to educational degrees, comparing a vast range of available options within a given category. The comparison shopping facilitated by these sites offers obvious benefits to consumers, who can find the best deal on the product most ideally suited to their needs. But recent research suggests that comparison shopping may sometimes come at a cost. By altering the psychological context in which decisions are made, comparison shopping may distract consumers from attributes of a product that will be important for their happiness, focusing their attention instead on attributes that distinguish the available options. Examining this idea, Dunn, Wilson, and Gilbert (2003) took advantage of a natural experiment created by the housing system at Harvard University. Near the end of their first-year of college, Harvard undergraduates are randomly assigned to spend the subsequent three years living in one of twelve “houses.” Each house has a dining hall, as well as recreational facilities, and much of undergraduate life revolves around the houses. Some of the houses are located near the center of campus and have beautiful architecture and lovely rooms, while others are located farther from the main campus and were built during more regrettable eras of architectural design. Although there is great variety in the physical features of the houses, all of them offer their residents a sense of community, as well as the opportunity to live with their closest friends, with whom they enter the housing lottery. When asked directly, first-year students in our study reported that the physical features of the houses (e.g., location, room size) would be less important for their happiness than the social features (e.g., sense of community, relationships with roommates). Indeed, when these students later settled into their houses as sophomores and juniors, their happiness was predicted by the quality of social features but not by the quality of physical features in the houses. But, when these students stood on the brink of entering the housing lottery and were asked to predict how happy they would be living in each of the twelve houses, their attention gravitated to the features that differed most between the houses; their predictions were driven largely by the physical characteristics of each house, which varied greatly between the twelve houses, while they overlooked the role of social features in shaping their own future happiness. Because students focused excessively on highly variable features of the houses, they fell victim to the impact bias, overestimating how happy they would be living in the physically desirable houses and how miserable they would be living in the less desirable houses. A similar process is likely to unfold in the real estate market. Before purchasing a home, people typically attend scores of open houses and viewings, scrutinizing spec sheets for information about each property’s features. Through this process of comparison shopping, the features that distinguish one home from another may come to loom large, while their similarities fade into the background. As a result, home buyers might overestimate the hedonic consequences of living in a big, beautiful house in a great location versus a more modest home, leading them to take out a larger loan than they can truly afford (potentially sowing the seeds for a nationwide financial crisis). From this perspective, comparison shopping may focus consumers’ attention on differences between available options, leading them to overestimate the hedonic impact of selecting a more versus less desirable option. To the extent that the process of comparison shopping focuses attention on hedonically irrelevant attributes, comparison shopping may even lead people to choose a less desirable option over a more desirable option. In a particularly vivid demonstration of this idea, Hsee (1999) presented participants with a choice between receiving a larger (2.0 oz.) chocolate valued at $2 that was shaped like a real cockroach and a smaller (0.5 oz.) chocolate valued at 50 cents that was shaped like a heart. Although only 46% participants of participants predicted that they would enjoy the larger roach-shaped chocolate more than the smaller heart-shaped one, fully 68% of participants reported that they would choose the roach-shaped chocolate. This suggests that comparison shopping may lead people to seek out products that provide the ―best deal‖ (i.e., why accept a chocolate valued at 50 cents when I could have one valued at $2?). Another problem with comparison shopping is that the comparisons we make when we are shopping are not the same comparisons we will make when we consume what we shopped for (Hsee, Loewenstein, Blount, & Bazerman, 1999; Hsee & Zhang, 2004). Morewedge et al (in press) asked people to predict how much they would enjoy eating a potato chip. Some participants were in a room that contained superior foods (e.g., chocolate) and some were in a room that contained inferior foods (e.g., sardines). Participants who were exposed to inferior foods predicted that they would like the chips more than did participants who were exposed to superior foods. But these predictions were wrong. When participants actually ate the chips, they liked them equally, regardless of what room they were in. When making predictions, participants naturally compared one imagined experience (chips) to another (chocolate or sardines). But once they actually had a mouthful of crispy fried salty potato chips, they no longer compared the food they were eating to the food they might have eaten but didn’t. One of the dangers of comparison shopping, then, is that the options we don’t choose typically recede into the past and are no longer used as standards for comparison.