Range‐Dependent Attribute Weighting in Consumer Choice: An Experimental Test

Abstract

This paper investigates whether the range of an attribute's outcomes in the choice set alters its relative importance. I derive distinguishing predictions of two prominent theories of range‐dependent attribute weighting: the focusing model of Kőszegi and Szeidl (2013) and the relative thinking model of Bushong, Rabin, and Schwartzstein (2021). I test these predictions in a laboratory experiment in which I vary the prices of high‐ and low‐quality variants of multiple products. The data provide clear evidence of choice‐set dependence consistent with relative thinking: price increases that expand the range of prices in the choice set lead to more purchases. Structural estimates imply economically meaningful effect sizes: the average participant was willing to pay around 17% more when a seemingly irrelevant option is added to their choice set.

Correlation Neglect in Student-to-School Matching

“…In the salience model of Bordalo et al (2012), the key predictions come from their assumptions of ordering and diminishing sensitivity, which at times point in the direction of either of the previous models. For a recent paper carefully comparing these theories and their empirical performance in explaining experimental purchasing decisions, see Somerville (2022).…”

Search Costs and Diminishing Sensitivity

“…In order to jointly estimate search costs and the degree of relative thinking, we use the parameterized version of w 1 (.) from Somerville (2022). With this parametrization, we obtain scaleindependent search cost estimates, see Appendix A.6 for details.…”

“…15 Somerville (2022) conducts experiments in which he tests BRS relative thinking against focusing as defined by Kőszegi and Szeidl (2013) in a setting with decoy effects. He finds evidence mostly in favor of relative thinking.…”