A behavioral account of compensation awarding decisions

Abstract

Suppose an individual loses an irreplaceable object and someone else is at fault. How much should he be compensated? Normatively, compensation should equal the value (utility) to the victim. Our experiments demonstrate that compensation decisions often ignore value and are instead based on cost (how much the victim originally paid for the item) except when cost is zero. For example, we found that people awarded $200 for a destroyed item worth $500 to the victim if the cost was $200; however, they awarded $500 if the original cost was zero. We explain these phenomena in terms of lay scientism (the tendency to base decisions on objective factors) and discuss how the prevalent cost-based compensation rule hurts consumer welfare. Copyright # 2008 John Wiley & Sons, Ltd.key words compensation; law; legal decision making; lay rationalism; consumer welfare; free; zero Suppose Mary has a technician set up cable service at her house. While working, he accidentally breaks a record by the Beatles that she bought a few years ago for $200. Mary, a dedicated Beatles fan, just rejected an offer of $500 for that record a week before the damage. The record is irreplaceable, and Mary states that she is willing to pay up to $500 for an identical record. In this scenario, the cable technician is fully responsible for the damage. How much compensation should the cable company award Mary in order to fully cover her loss? How might they quantify her welfare, the value that she places on the record? Effective and just compensation ought to make a person whole, restoring the injured party to the condition prior to the damage occurring. One way to achieve this would be to purchase an identical record for Mary. However, this is not an option when damage occurs to one-of-a-kind items not available on the market. Thus, we need an alternative means of compensation that provides an equitable replacement based on the subjective value of the item, not on its original cost.

Modelo de uso de información para la toma de decisiones estratégicas en organizaciones de información

“…-Estados emocionales asociados al uso de información (Choo, 1999;Druckman;Alekalns, 2008;Tsai;Hsee, 2009;Rodríguez-Cruz, 2013). …”

A pleasant surprise or injury plus insult? : consumers' (dis)satisfaction with recovery strategies for service failure

“…Both studies suggest that consumers are satisfied even though their expectation is slightly higher than the actual compensation. As confirmed in both studies, the relationship between expectation and satisfaction is apparently elastic, and consumers may adjust their evaluation accordingly (Hsee, 1995(Hsee, , 1996Tsai & Hsee, 2009). Consumer satisfaction with recovery strategies, especially with apology, may vary, depending on the framing of time or money as the invested resource.…”

“…However, it has received attention in the past literature . In the past discussion of time vs. money, time was usually associated with emotional resource (Lee et al, 2009(Lee et al, , 2011Mogilner & Aaker, 2009;Reed, Aquino, & Levy, 2007), and was more elastic when judging its value (Hsee, 1995(Hsee, , 1996Tsai & Hsee, 2009). Through mental account theory (R. Thaler, 1980;R.…”

“…Although researchers have found that people usually weight the money loss more severe (Okada & Hoch, 2004), others suggest that the loss of time hurts more (Leclerc et al, 1995). Moreover, people evaluation of time is more elastic, and people expected to be compensated more when such loss does not have specific values (Hsee, 1995(Hsee, , 1996Tsai & Hsee, 2009). Under what circumstances will people weigh time more present a fruitful avenue for future research.…”