Special Session Summary Sequential Choices and Uncertain Preferences

Ravi Dhar, Yale University
[ to cite ]:
Ravi Dhar (1998) ,"Special Session Summary Sequential Choices and Uncertain Preferences", in NA - Advances in Consumer Research Volume 25, eds. Joseph W. Alba & J. Wesley Hutchinson, Provo, UT : Association for Consumer Research, Pages: 57.

Advances in Consumer Research Volume 25, 1998      Page 57



Ravi Dhar, Yale University

Consumer choice has been one of the most researched areas in the consumer decision making literature. Much of this research has examined issues relating to single choices, such as the rules that consumers employ or the manner in which the set of alternatives under consideration (i.e., the "choice context") and the task characteristics influence preferences (e.g., Bettman, Johnson, and Payne 1991). However, most choices are made in the context of series of qualitatively similar decisions relating to the same events (e.g., putting money each month or annually in retirement accounts, timing of replacement of durable goods). This session hopes to provide insights into several choice behavior that occur repeatedly over time. Given that static choice behavior has been shown to deviate systematically from normative solutions, the focus is more on understanding how dynamic decisions are actually made rather than providing a contrast with a standard straw man. Finally, we think it also allows us to study a wider array of consumer decision problems that are more meaningful when seen as a part of a series of choice.

Despite different objectives, the three papers investigating sequential decision processes have certain common aspects. The general theme is that iterative choice behavior induces people to behave in a fashion that takes into account future expectations as well as feedback from the outcome of the previous choice. The present papers also share common elements in terms of the process underlying principles of sequential choice (i.e., discounting). The papers also examine the link between biases that are observed in static choice with those that may occur in repeated choices. In particular, static choice principles can be used to understand the causes, effects, and the processes of repeated choices.

The study of sequential choices has important implications for the role and definition of consumer behavior. An analysis of sequential choices helps to understand the motives underlying several behaviors that are under researched. While sharing a common theme, the researchers address different surface problems (e.g., replacement of durable goods, investor choice of stocks, tipping/donation behavior) using different methodologies (laboratory experiments, process measures, and game theory.) The first paper (Robert J. Meyer) investigates the process by which consumers make sequential decisions about whether to repair or replace durable goods whose performance deteriorates probabilistically over time. Two experiments were reported in which subjects were charged with the task of maximizing the level of output of a hypothetical factory while minimizing the costs of keeping the factory running, including both maintenance and replacement costs. Among the predictions that emerged from this framework is that consumers hould over invest in maintenance early in the life cycle of a product, while under invest in maintenance later in the life cycle.

The second paper (Drazen Prelec and Ronit Bodner) reviewed the basic notion of self-signaling behavior to derive some specific implications for dynamic choice. The authors showed theoretically that an action diagnostic of positive personal traits has a multiplier effect, increasing the probability that the same action will be repeated the second time that a similar choice opportunity arises. It is as if each "good" choice contributes an increment of "moral capital," making future good choices more likely (where "good" means "diagnostic of desirable traits"). The authors suggest that since any single decision is a potential precedent for subsequent decisions, self-signaling invests individual choices with more significance than they would have in isolation.

The third paper (Dhar and Simonson) contrasted psychological variables underlying investor behavior with the rational investor model of stock market prices that assumes that all pertinent economic information of company’s worth is reflected in its stock price. Building on recent research that assumes that investors track stock prices and expect a mean reversion or trend in performance, the authors show a preference for buying and selling specific stocks. The authors also investigate other factorsCanchor prices, perceived losses and gains, and regretCthat affect buying and selling decisions.

Given the diversity of the papers, the direction of the discussion was to arrive at a unifying force rather than a session summary. Russ Winer, the discussant helped to highlight some of the promising avenues that are emerging in this area of decision research as well as make suggestions for future research based on the findings elsewhere (e.g., work on leasing, choice inertia) in the literature.