Do Consumers Make Too Much Effort To Save On Cheap Items And Too Little To Save On Expensive Items? Experimental Results And Implications For Business Strategy
Source: Munich Personal Repec Archive
The paper presents an experiment that illustrates a behavior that the author denotes "Relative thinking." Subjects in the experiment revealed the minimal price difference for which they were willing to spend 20 minutes and go to a cheaper store. Five different goods and nine different prices were used in a between-subjects design. Subjects showed striking positive correlation between the good's price and their valuation of their time as it was reflected in their decisions. The experiment suggests that subjects think about both the relative and the absolute price differences, even though according to economic theory they should only consider the absolute price difference.