Robert Meyer

Yanliu Huang and Robert Meyer (Working), Tradeoffs in the Dark: The Effect of Experience on Extrapolated Consumer Preferences.

Robert Meyer, Jin Han, Shengui Zhao (Under Review), A Tale of Two Judgments: Biases in Prior Valuations and Subsequent Utilization of Novel Technological Product Attributes.

Abstract: We explore the degree to which consumers’ willingness-to-pay for next-generation products is rationally consistent with levels of utilization of novel features displayed after adoption. Using data from an experiment that requires subjects to buy and then utilize successive generations of an arcade game, we find support for an overvaluation bias: respondents place a high value on the ability to acquire an enhanced game form, but then make limited use of its novel controls after adoption. The effect is shown to be robust to incentives that provide a monetary reward to accurate valuations, priming of forecasts of downstream usage, and allowing subjects brief periods of trial ownership. The bias is explained in terms of myopic buying-and-utilization processes where a priori assessments of value do not anticipate future usage, and post-hoc decisions about utilization do not feel obligated to past valuations.

Description: Under first review.

Robert Meyer, R. Tyagi, J. Walsh (Under Review), An Experimental Analysis of Dynamic Pricing in Markets with Uncertain Demand.

Description: Under first review.

Robert Meyer and Howard Kunreuther (Under Review), An Experimental Analysis of Learning from Experience about Natural-Hazards.

Abstract: The ability of individuals to learn optimal strategies for mitigation against infrequently-occurring natural hazards is explored. We report the results of two experiments in which participants are faced with the problem of learning the most cost-effective means of protecting against earthquake losses. The experiments utilize dynamic computer simulations in which participants are endowed with homes in virtual communities that are prone to periodic impacts by earthquakes. Participants can invest in measures that potentially mitigate losses from quakes but the effectiveness of these measures is initially uncertain. Over time participants have the opportunity to learn about true effectiveness both by direct experience with simulated earthquakes and by observing the decisions and experiences of other players. The data offer a pessimistic view of learning abilities; not only do participants persist in investing in mitigation instruments that, in fact, have no ability to lower damage, but they also fail to fully invest in instruments that are highly effective. Among the mechanisms that appeared to impede learning was a tendency to mimic local group norms in investment levels (which are suboptimal) and to prematurely terminate attempts to learn. The paper concludes with a discussion of the implications of the work for both basic research on decision making in low-probability, high-consequence settings as well as prescriptive research in natural-hazard mitigation.

Robert Meyer and Shengui Zhao (Working), Biases in Predicting Preferences for the Whole from Product Fragments.

Abstract: In this research we examine the ability of consumers to predict the likely appeal of large visual patterns from small sample fragments. In a task designed to mimic the dilemma of choosing wall paper from small swatches, study participants are shown fragments taken from a large pattern design and are asked to predict how attractive they would find the complete image. Drawing on research on affective forecasting and inference heuristics, we hypothesize that these predictions will be driven by an anchoring-and-adjustment process that skews predictions toward the local attractiveness of fragments. Results from three laboratory studies support this basic hypothesis: respondents consistently overestimate the degree to which their initial reactions to fragments predict their subsequent evaluations of wholes. The size of this projection bias is, in turn, conditioned by such moderators as prior familiarity with product fragment, cognitive load, and visualization abilities—effects that are consistent with an anchoring-and-adjustment explanation for the data.

Robert Meyer, E. Johnson, B. Hardie, John Walsh (Under Review), Observing Unobserved Heterogeneity: Using Process Data to Model Unobserved Heterogeneity in Consumer Choice Data.

Abstract: People use different strategies when making choices. Modeling this choice process heterogeneity, however, is difficult using just the data provided by most standard choice experiments. We try to capture process heterogeneity by augmenting choice models with variables derived from information-acquisition data gathered unobtrusively during choice tasks. These variables supplement standard logit specifications which identify how an individual used the attributes and attribute values to screen and rank alternatives in making a choice. The approach improves in-sample fit, prediction in a holdout sample, and residuals indicate that the models are providing better specified estimates of choice probabilities.

Description: Under third review.

Narayan Jankiraman, Robert Meyer, Andrea C. Morales (Working), Spillover Effects: How Consumers Respond to Unexpected Changes in Price and Quality.

Abstract: This article examines how unexpected changes in the marketing mix of one product in a retail setting can influence demand for other, unrelated items. Results from two laboratory studies show that spillover effects can occur in response to both positive and negative changes in either the price or quality of a product, such that positive changes increase total spending on other items and negative changes reduce it. The results also demonstrate that an attributional process underlies these effects, indicating that consumers experience specific affective responses directed at the retailer that lead them either to reward or punish the retailer accordingly.

Robert Meyer, Shengui Zhao, Jin Han (Working), The Enhancement Bias in Consumer Decisions to Adopt and Utilize Product Innovations.

Abstract: The ability of consumers to anticipate the value they will draw from new product generations that expand the capabilities of incumbent goods is explored. Drawing on previous research in affective forecasting, the work explores a hypothesis that consumers will frequently overestimate the benefits they envision drawing from new added product features and underestimate the learning costs required to realize those benefits. This hypothesis is tested using a computer simulation in which subjects are trained to play a Pacman-like arcade game where icons are moved over a screen by different forms of tactile controls. Respondents are then given the option to play a series of games for money with an incumbent game platform or pay to play with an alternative version that offer either expanded (Experiments 1 and 2) or simplified (Experiment 3) sets of controls. As hypothesized, subjects displayed an upwardly-biased valuation of the new sets of controls as measured by actual versus forecasted usage rates and performance gains. Yet, when given the opportunity to be paid to trade down to a more efficient device in exchange, few accepted. We thus observe a paradox where the presence of forecasting mistakes in product adoptions does little to induce regret in ownership.

Robert Meyer, N. Janakiramanand, A. Morales (Under Review), The Mental Accounting of Price Shocks: The Effect of Unexpected Price Changes on Cross-Category Purchase Patterns.

Abstract: A rarely challenged tenet of economic theory is that as long as consumers do not face liquidity constraints, goods satisfying different fundamental needs not should exhibit significant cross-price elasticities. Mental accounting, however, provides a theoretical mechanism by which this assumption may be violated when the posted prices of goods unexpectedly depart from historical or expected levels. Specifically, expected price shocks may alter the illusory liquidity of consumers, such that unanticipated price increases suppress consumers’ tendencies to purchase discretionary goods, while unanticipated price decreases enhance it. This hypothesis is tested using data from a computerized grocery-shopping simulation in which subjects are faced with the problem of minimizing the cost of keeping a home stocked with twelve different grocery items over a multi-period horizon. After an acclimation period where subjects are allowed to develop expectations for the usual prices of these goods, they are exposed to two extreme price-shock events: one where a required item is priced dramatically above its regular retail price, and another dramatically below. The data support the core spillover hypothesis, with high-price shocks suppressing average out-of-category buying and low-price shocks inflating it. The data also show, however, that the mechanism that induces these effects differs between positive and negative shocks. The primary driver of the suppression of average sales given unexpected price increases is dramatically increased small-deal sensitivity; subjects are loathe to buy goods sold at regular retail prices, but are more apt to buy goods offered for sale at small discounts. On the other hand, unexpected price decreases appear to induce a simpler illusory wealth effect, with buying increased but without any change in small-deal sensitivity. An additional surprising finding is that the spillover effect proves robust to several variables that are hypothesized to limit its boundaries. Specifically, the strength of the spillover effect was not modified by variation in whether or not consumers had a standing inventory of a good at home (a surrogate for whether its purchase is more likely to be seen as discretionary), the base price to which the price shock is applied, and previous exposures to price shocks. A discussion of the implications of the work for research in mental accounting and pricing is provided.

Narayan Janakiraman, Robert Meyer, Stephen Hoch (Working), The Psychology of Consumer Decisions to Continue or Abandon Waits from Invisible Service Queues.

Abstract: We examine the process by which consumers make sequential decisions whether to continue or abandon waits for service. We focus on the case of invisible queues, where consumers cannot observe their location in a queue as it progresses, only the passage of time. Our hypothesis is that stay-or-renege decisions will frequently sub-optimal, marked by a tendency to prematurely abandon waits from distributions for which it is never optimal to renege (e.g., uniform waits) but excessively persist given distributions that have optimal early reneging windows. We propose a competing-hazards theory that models on-going stay-or-renege decisions as a blend of two opposing influences: the escalating displeasure of waiting and the opposing desire to complete a wait that has been initiated. Among the theoretical predictions that emerge from this theory is that reneging rates will display an inverted U-shape function over time, with consumers being most prone to renege near the mid-point of waits. Reneging is also hypothesized to be affected by a number of normatively-irrelevant moderators, such as the initial number of alternative queues and the amount of physical activity that is engaged in during a wait. Evidence supporting these hypotheses is provided by four experimental studies in which respondents have the goal to complete as many downloads as possible from a hypothetical website within a finite time window, where there is a continuous opportunity to abandon a wait to begin a new one.