The Faculty of Business Administration and Social Sciences cordially invites you to the Brown Bag weekly seminar on Wednesday, 28/8 at 12:15-13:15 in room A.1-058 (please note that this is on-site only, so no Zoom). Bring your own lunch. Coffee and tea will be served.
Abstract:
The study examines relative thinking (being affected by irrelevant relative price differences) in the context of product differentiation. This is important because people frequently compare prices of differentiated goods and services, and their behavior has important implications for economics, advertising, marketing, pricing, etc.
Subjects were asked (in an incentivized manner) to indicate for 11 different pairs of goods, given the price of one good, what is the maximal price of the other good for which they would prefer the latter. In two between-subject treatments, the reference prices of the goods differed. Subjects received the price of either the low-quality good ("willingness to pay" (WTP) treatment) or the high-quality good ("willingness to accept" (WTA) treatment).
In the WTP version, no relative thinking was detected. In the WTA version, relative thinking was documented in all cases. The suggested explanation is that two biases exist:
- Relative thinking. People are willing to pay more for a constant improvement in quality when the product's price is higher because they consider the addition also relative to the price.
- A prominence bias. Subjects focus on the value of the product they are pricing although what matters is the difference in value between the two goods.
You can see the list of seminars here: https://www.himolde.no/english/research/events-articles-and-news/events/brown-bag-seminars/index.html