Opportunity Cost Neglect

Abstract

To properly consider the opportunity costs of a purchase, consumers must actively generate the alternatives that it would displace. The current research suggests that consumers often fail to do so. Even under conditions promoting cognitive effort, various cues to consider opportunity costs reduce purchase rates and increase the choice share of more affordable options. Sensitivity to such cues varies with chronic dispositional differences in spending attitudes. We discuss the implications of these results for the marketing strategies of economy and premium brands. (c) 2009 by JOURNAL OF CONSUMER RESEARCH, Inc..

On the Mental Accounting of Restricted-Use Funds: How Gift Cards Change What People Purchase

“…Our conclusions are related to work on consideration of opportunity costs (Bartels and Urminsky 2015;Frederick et al 2009;Spiller 2011) and earmarking (Cheema and Soman 2011;Webb and Spiller 2014). These research streams examine how potential uses of money-spontaneously generated or provided-influence spending decisions.…”

Cultural differences in opportunity cost consideration

“…Therefore, opportunity cost information was more likely to be taken into account in decision-making when it was explicitly provided than not. Frederick et al (2009) recently documented this phenomenon in purchase decision-making. For example, in one study, half of the participants chose between the options "buy this entertainment video" and "not buy this entertainment video" (control condition); the other half of the participants chose between "buy this entertainment video" and "keep the money for other purchases" (opportunity cost salient condition).…”

“…Rationally speaking, people should consider opportunity cost (i.e., the alternative returns one has to give up) in their decisions to maximize the returns. Yet, empirical evidence has documented that people rarely take opportunity cost into consideration in decision-making, if information about opportunity cost is not explicitly presented (Northcraft and Neale, 1986;Frederick et al, 2009;Shavit et al, 2011). For instance, Northcraft and Neale (1986) found that participants were less likely to consider opportunity cost when opportunity cost information was not mentioned; however, participants altered their decisions to be congruent with the traditional cost/benefit analysis paradigm proposed by economists when they were presented with explicit opportunity cost information.…”

“…Research has shown that individual differences also moderate the extent to which people consider opportunity costs (Frederick et al, 2009;Spiller, 2011). For example, in one study, Frederick et al (2009) found that tightwads, people who do not like to spend money, were more likely to consider opportunity cost and were therefore less influenced by the salience of opportunity cost information than were spendthrifts, people who spend money wastefully.…”

“…With its high relevance to judgment and decision-making, the concept of opportunity cost has drawn substantial attention from researchers in accounting, behavioral economics, and marketing since the 1970s (Neumann and Friedman, 1978;Friedman and Neumann, 1980;Northcraft and Neale, 1986;Frederick et al, 2009). …”