econ327 - context effect

Hsee (1996)

• joint evaluations (JE) / simultaneous consideration of two options vs separate evals (SE) of each option in isolation

• evaluability of continuous attribute depn on knowledge of avg, best, & worst values

• reflects desirability given context

  • JE --> have reference & shifts attributes used to judge

  • SE --> no ref & use easy evaluated attributes

context effect

effect of choices set composition on consumers’ purchases decisions

• attraction effect

• compromise effect

• similiarity effect

• bundling

attraction effect

how introducing new product affects market shares of exisiting products

• Huber, Payne, Puto (1982) studied how introducing new product affects market shares of existing products

  • market share of target product increase if dominated alternative is added to choice set

• given the option to choose: a Cross pen or $6 in cash, most chose the cash

  • when given the option to choose: a Cross pen, an inferior pen, or the cash, more people chose the Cross pen

  • presence of inferior pen increased attractiveness of Cross pen

regularity

needs that the probability an alternative is chosen does not increase if the choice set is expanded

• opp. of attraction effect

Tversky & Simonson (1992)

explain Attraction effect using loss aversion model

compromise effect

using the fact people don’t like to buy the cheapest or most expensive good, so they’ll opt for the middle ground (introduce middle 3rd option)

• scenario:

  • single cheese burger (50%) or double cheese burger (50%)

  • single burger (30%), double (60%) or tripple (10%)

• take advantage that most people aren't comfortable w/ buying cheapest or most expensive in a line of products

  • CD line: basic ($50), exclusive ($200), most people would buy mid model ($100)

  • can boost sales by creating arbitrarily high-priced model

similarity effect

item hurts alternatives that are similar to that item more than dissimilar items

• ex. consumer considers an Audi A4 and Volkswagen Jetta

  • A4 --> $25,760 rated 8.3

  • Jetta $17,675 rated 7

    • hard to choose between A4 and Jetta

    • another option is added

  • Suzuki Aero $14,019 rated 6.7)

    • not Jetta is less attractive than A4

bundling

addition of promotion or feature can decrease attractiveness & choice probability of promoted brand

• consider context effect is important to remember that seemingly unrelated decisions can affect a decision on a focal product

• happens b/c since the bundle made it less attractive, it was enough for them to not buy it

  • lowered the perceived value of the good

context effect consequences

• choice is influenced by the composition of the choice set

• independence of irrelevant alternatives (IIA) assumption is violated

remember

• attraction effect occurs w/ introduction of 3rd option that is dominated by one of existing option but not the other

• compromise effect occurs when 3rd option is a compromise between existing options

• similarity effect occurs w/ introduction of 3rd option that is similar to 1 option but not the other