Do people think about absolute or relative price differences when choosing between substitute goods?

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21 Scopus citations

Abstract

The article presents experimental evidence that shows that people often consider relative price differences in addition to absolute differences when choosing between substitute goods. Because the choice between substitute goods is a very common one, this is an important finding. The experiment uses scenarios in various consumption categories: hotel rooms, flights, and books. Subjects were either students or participants in an economics conference. The data allow to reject the hypothesis that people think only about relative price differences in favor of the hypothesis that people think about both relative and absolute price differences. Whether the price given to the subjects is that of the high-quality good or of the low-quality good makes a large difference, a result that is related to the endowment effect and the status quo bias. Implications of the results for business strategy and other areas are also discussed.

Original languageEnglish
Pages (from-to)450-457
Number of pages8
JournalJournal of Economic Psychology
Volume32
Issue number3
DOIs
StatePublished - 1 Jun 2011

Keywords

  • Behavioral decision making
  • Consumer behavior
  • Loss aversion
  • Product differentiation

ASJC Scopus subject areas

  • Applied Psychology
  • Sociology and Political Science
  • Economics and Econometrics

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