Lay Scientism: Ignorance of Value in Compensation Decisions

How should one compensate a consumer who loses something irreplaceable because of someone else’s fault? Normatively, compensation should equal the value (utility) of the lost item and thus make the victim as happy as she would be had the damage never occurred. Our experiments demonstrate that people’s compensation decisions often ignore value and are based on the normatively irrelevant factor of cost (the price that the victim originally paid for the item). We explain this phenomenon in terms of lay scientism (a tendency to base decisions on objective factors) and discuss how the popular cost-based compensation rule hurts consumer welfare.



Citation:

Claire Tsai and Christopher Hsee (2007) ,"Lay Scientism: Ignorance of Value in Compensation Decisions", in NA - Advances in Consumer Research Volume 34, eds. Gavan Fitzsimons and Vicki Morwitz, Duluth, MN : Association for Consumer Research, Pages: 265-268.

Authors

Claire Tsai, University of Chicago, USA
Christopher Hsee, University of Chicago, USA



Volume

NA - Advances in Consumer Research Volume 34 | 2007



Share Proceeding

Featured papers

See More

Featured

Boomerang Effect: How Sustainable Disposal Options Spur Green Consumers to Overconsume

Sommer Kapitan, Auckland University of Technology, New Zealand
Saerom Lee, University of Texas at San Antonio, USA
Eunjoo Han, Auckland University of Technology, New Zealand

Read More

Featured

Mediation as a Multi-Dimensional Process of Brand-Related Interaction

Serena Wider, Copenhagen Business School
Andrea Lucarelli, Lund University
Sylvia Wallpach, Copenhagen Business School

Read More

Featured

Prices in Red: When a Red Price Becomes a Stop Sign

Hongjun Ye, Drexel University, USA
Siddharth Bhatt, Drexel University, USA
Rajneesh Suri, Drexel University, USA

Read More

Engage with Us

Becoming an Association for Consumer Research member is simple. Membership in ACR is relatively inexpensive, but brings significant benefits to its members.