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“Context in Choice: Behavioral Bias or Economic Behavior?", Barry Sopher (Economics, Rutgers)

Tuesday, February 05, 2019, 01:00pm - 02:30pm

Busch Campus, Psych 101

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Abstract

The talk reports on a research project exploring the “background context” effects of the sort documented in Tversky and Simonson (1993), wherein it was found that subjects (hypothetical) choices between a certain pair of (warranty, price) combinations for automobile tires could be influenced, on average, by presenting different groups of subjects with different initial pairs to compare prior to the pair of interest.  This is an instance in which the behavioral phenomenon in question (which I do not question to veracity of), may not be a violation of any precept of economic theory at all.  This is because the use of a price as a characteristic of an item of choice, in fact, has introduced a constraint into the situation, if only implicitly.  To put this point in a more obvious way,  a given member of one group of people might well, typically, choose a 10 cent apple over a $1 orange, and the typical person in another group of people might  choose a $3 orange over a $2.90 apple.   All that is needed is that most people have at least a bit of a preference for oranges, but also be sensitive to prices.  How would the typical person in each of these groups choose between a $1.10 apple and a $1.50 orange?  If the people in each group consider the amount of  money needed to make their purchases, and if these amounts are, on average different for the two groups (as they could be, given the different prices), then, to the extent that these notional amounts of income carry over to the second choice task, one might well see different average choice behavior, simply due to the different hypothetical budget constraints that would be, implicitly, present. But other context effects documented by Tversky and Simonson (notably the “decoy effect” of adding an obviously cheaper writing pen to a choice problem between $6 cash and a more expensive Cross pen) also result in a different distribution of choices between the main items of interest (the cash or the Cross pen), and this cannot be attributed to an implicit budget constraint.  In the case of the decoy effect, however, there is a much smaller observed effect (about a 10% shift, vs. about a 25% shift in the tire warranty choice question).   In either case, though, we are still in a situation where only a minority of subjects, not all, appears to be subject to the effect, and so the same rhetorical question raised for the endowment effect can be raised here.

Relevant Reading

  • Tversky, Amos and Itamar Simonson (1993), “Context-Dependent Preferences,”  Management Science, Vol. 39, No. 10 (Oct., 1993), pp. 1179-1189