When and how firms can exploit consumers’ bounded rationality or information deficits to their interest is central for designing consumer policies. The rational consumer paradigm on which much of our understanding of consumer behavior and policy design relies, can lead to mistaken answers. Our projects in this area span a wide array of issues and methodological tools.
First, we continue to study issues of expressive consumer behavior, i.e. purchasing products to express values and gain a positive image. Thus, we investigate in laboratory experiments whether image-driven pro-social purchasing can be crowded out through non-monetary incentives. Using experimental methods, we also test whether consumers make correct inferences when facing products without specific labels and how their naivety can affect market outcomes. Moreover, we analyze how website defaults and quality certification affect consumer behavior in the domain of charitable giving.
Second, using observational data, we investigate why people borrow too much and at interest rates that are too high. To explain these findings, we compare the relative importance of various potential behavioral biases, such as overconfidence and over optimism, self-control and present bias, and social comparison. Similarly, using hypothetical discrete choice experiments and field experiments, we plan to study the impact of overconfidence and attitudes toward uncertainty on consumers’ choices for flat rates (owning) vs. pay-per-use consumption (demand-driven renting). Further, to test and measure consumers’ limited attention about partitioned prices, we estimate a discrete choice model of consumer demand on eBay Germany.
Finally, we plan to take up the feedback received from consumer policy practitioners on our previous work and seek to quantify firms’ (ab)use of very long, seemingly consumer-friendly deadlines such as, for instance, IKEA’s 365-day return policy.