Preference reversals resulting from a market value heuristic

Abstract

Two studies demonstrated preference reversals using consumer products. Some subjects made a choice between a pair of food or hygiene products while others assigned minimum selling prices to each product. Product pairs were selected such that one item had a high market price but was undesirable (e.g. eggplant roulettes) while the other item had a low market price but was desirable (e.g. a can of soda). As predicted, most subjects choose the low market price/desirable item, but the high market price/undesirable item was assigned a higher minimum selling price. Experiment 1 used a hypothetical questionnaire, while in Experiment 2 responses had real consequences. The results suggest a market value heuristic such that when decision makers are unsure of how to translate their preference into a specific dollar amount they substitute the product's market price for their own preference. The implication of this heuristic is that if merchants consistently set the retail price of a particular product at a certain level, consumers will use that retail price as the basis of their pricing evaluations and will come to value the product at the retail price. Key Words • choice • market price • preference reversal • selling price A decision maker's preferences should not vary with the manner in which they are expressed, according to normative decision theory. For example, if a decision maker prefers an apple to a banana, she should choose the apple over the banana, and she should also pay more for an apple than for a banana and demand more

Effort Aversion: Job choice and compensation decisions overweight effort

“…A further prediction of the current research is that the weighting attached to the relative wage will differ across these two choice procedures. This prediction is informed by a series of preference reversals reported in Amir et al (2008) and in Boothe et al (2007). Boothe et al attribute these reversals to the Market Value Heuristic.…”

“…Boothe et al, 2007;Amir et al, 2008). The prediction that relative wage is likely to be weighted more heavily in choice than in experience stems from findings on rules (e.g.…”

Magnitude effects in preference reversals.

“…Besides, PR has been replicated in both individual and group responses (Mowen & Gentry, 1980; cf., Berga & Moreno, 2020), has been identified in interpersonal comparisons between single and two or more payoffs (Bazerman et al, 1992), and has been observed more robust than the common consequence effect, or the so-called the Allais paradox, over varying outcome magnitudes (Oliver & Sunstein, 2019). Although much of the work was largely driven by findings in more artificial experimental settings, PR is also unlikely to disappear in more realistic scenarios such as in incentivized experiments (Grether & Plott, 1979), in real-world markets (Bocquého et al, 2013; Boothe et al, 2007; Chen et al, 2020; List, 2002; Lusk, 2019), in real-world lotteries (Ball et al, 2012; Bohm & Lind, 1993; Kachelmeier & Shehata, 1992; Lichtenstein & Slovic, 1973), in different pricing formats (Berg et al, 1985), and among highly trained specialists such as bank employees and finance students (Bohm, 1994b). Moreover, PR has also been transcended from the domain of classic monetary lotteries to the ones including, for example, intertemporal choices between smaller-sooner and larger-later options (Gerber & Rohde, 2010) and medical treatments (Oliver, 2013).…”

An Implicit approach to object valuation and psychological ownership

“…Therefore, it appears that one's valuation of an item is readily anchored to some external reference. In another study, Boothe, Schwartz, and Chapman (2007) found that there was preference reversal between a less preferred item that has higher market value (eggplant roulettes) and a more preferred item that has low market value (Coke). In a between-subjects experiment, when asked about which item was preferred between the Coke and eggplant roulettes, participants preferred the Coke.…”