Special Session Summary Causes and Processes Underlying Reference Effects in Consumer Choice

Citation:

Ravi Dhar (1998) ,"Special Session Summary Causes and Processes Underlying Reference Effects in Consumer Choice", in NA - Advances in Consumer Research Volume 25, eds. Joseph W. Alba & J. Wesley Hutchinson, Provo, UT : Association for Consumer Research, Pages: 162.

Advances in Consumer Research Volume 25, 1998      Page 162

SPECIAL SESSION SUMMARY

CAUSES AND PROCESSES UNDERLYING REFERENCE EFFECTS IN CONSUMER CHOICE

Ravi Dhar, Yale University

Most conceptions of rational choice assume that individual preferences are well defined. This viewpoint of consumers’ decision making is in contrast with the emerging consensus among consumer decision researchers that preferences are often fuzzy, unstable, and inconsistent (Slovic 1995). Consumers are depicted as constructing and expressing rankings with respect to possibilities that they have actually considered. Such an idea makes choices sensitive to various aspects of the decision situation (Payne, Bettman, and Johnson 1992). One such decision variable that has received a great deal of attention is the reference point or the initial starting position. Although standard models of decision making assume that preferences should not depend on the starting position, there is substantial evidence that the reference points have an influence on both judgment (i.e., anchoring) and riskless choice (i.e., the rate of exchange between two goods). Two of the papers focus on reference points that are normatively irrelevant (Chapman and Johnson, Dhar and Wertenbroch). In Leclerc and Hsee, when these reference states provide potentially useful information, their effect on choice is context dependentCwhether the available alternatives are presented simultaneously or sequentially. In addition to documenting new types of reference effects, the papers in this session suggest causes why such effect exist and the boundary conditions under which they may be attenuated.

The study of reference dependent preference formation has important implications for the role and definition of consumer behavior. Instead of treating consumer needs as given and defining the role of marketing as devising means to satisfy such needs, a constructive view of consumer preferences allows the marketer to shape those needs, thereby creating a source of competitive advantage. Further, while the reference effects have been documented within consumer research, relatively little is known about the underlying causes and boundary conditions for such effects. The three papers in the session differ in their degree of process-outcome orientation. The first paper proposes a mechanism underlying anchoring bias in judgment and carefully outlines supportive evidence. The second paper shows how differences in reference points can influence choice between alternatives that vary on hedonic-functional levels and what it means for existence of loss aversion. The third paper examines the role of reference levels in determining relative evaluation of productsCa recent phenomena identified by Simonson and Nowlis and Hsee. The three papers are similar in the sense that different tasks (sequential versus simultaneous evaluation, loss versus gain frame) and different contexts (common or unique features) highlight different considerations giving rise to iconsistent decisions. The papers are summarized next.

The first paper (Chapman and Johnson) extend the authors previous work examining the process underlying anchoring effects in judgments. Their findings suggest that anchors affect judgments by increasing the availability and construction of features that the anchor and target hold in common and reducing the availability of features of the target that differ from the anchor. The authors test this Confirmatory Search mechanism of anchoring in five experiments and their results indicate that prompting subjects to consider features of the item that are different from the anchor reduces anchoring, while increasing consideration of similar features has no effect.

The second paper (Leclerc and Hsee) examines whether two different but equally attractive options will receive more favorable valuations when evaluated separately by different individuals (separate evaluation), or when evaluated simultaneously by the same people (joint evaluation). The authors hypothesize that when evaluating two options jointly, people rely less on the reference information they would otherwise use in separate evaluation, and make their evaluation by comparing one option against the other. As a result, whether the separate or the joint evaluation mode leads to more or less favorable valuations depends on the relationship between the stimulus options and the reference information associated with these options. The authors conduct three studies, each tapping into a different product category, to show that if the stimulus options are better than the reference, they will be valued more favorably in joint evaluation. If they are worse than the reference, they will be valued more favorably in joint evaluation.

The third paper examines the differences in consumers’ valuations of functional and hedonic goods based on the initial endowment. Building on the notion of task compatibility, they show that loss aversion is greater for hedonic than for functional goods. The authors test this hypothesis of differential loss aversion in two studies using real and hypothetical choices controlling for attribute importance. Consistent with their hypothesis of greater loss aversion for hedonic goods, subjects in the loss condition were more likely to retain the more hedonic product than subjects in the gain condition. A field study tested and supported the implications of our experimental findings for secondary car markets for sports and functional cars.

Given the diversity of the papers, the direction of the discussion was to arrive at a unifying force rather than a session summary. Joel Huber, 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 in the literature.

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