International Choice Modelling Conference, International Choice Modelling Conference 2015

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WTP for strawberries: A study of the choice overload paradox in food products.
Daniel E Chavez, Marco A Palma

Last modified:  1 May 2015

Abstract


Background

Choice is the power to make a decision or the act of deciding between two or more possibilities; this carries a very potent message: power and possibility through decisions. The complexity of the choice task and the ability of people to choose play an important role on the external validity of the results (Levitt and List 2007). Louviere (2006) states: “I am not convinced that…subjects placed in strange tasks…tell us much about real behavior”. Complexity is an issue for subjects, especially those with low mathematical skills, something often neglected by economists (Dave et al. 2010). Burton and Rigby (2012) show that almost unambiguously, increasing complexity increases error variance in Choice Experiments (CE). They find that if subjects are permitted to self-select the number of available options to choose from, they reveal their preferences more accurately, reducing variance in results. When asked for their motivation in deciding the number of choices, subjects who selected smaller choice sets wanted less cognitive confusion, while subjects selecting larger sets alluded wanting to find the “right” option to be in the choice set (Burton and Rigby 2012). Contrary to the common assumption that more options are better, choice overload (Iyengar and Lepper 2000), describes that an extensive alternative array can reduce the desire for goods. A large amount of options complicates the task and Heiner (1983) suggests consumers faced with complex choices use mechanisms to simplify them.

Most research on choice overload compares large sets of alternatives (17-34) with relatively small ones (6-8). This study evaluates through experimental methods if individuals choosing among food products manifest choice overload even with few alternatives. Strawberries were selected as the food product to be used in the experiment because they are commonplace, familiar to most consumers and they have inherent heterogeneity in shape, taste, color and other sensory aspects.

Objectives

The study addresses the following questions:

Does the number of products available to participants in experimental auction (EA) settings affect WTP values?

Can subjects differentiate among competing product alternatives in EAs?

Does the number of products available lead to a choice paradox even with small number of products in EAs?

Methodology

A non-hypothetical second price experimental auction was conducted to obtain WTP from 200 subjects recruited in a midsized city at a large university campus in the southern United States. To capture if the number of options affects WTP, eight rounds of bidding were conducted, where the number of available strawberries was randomly changed each round from one to eight. Randomization accounts for learning and ordering effects on the bids. All strawberry varieties were coded in alphabetic cyphers to avoid ordinal bias. In all rounds two of the products were the same, but coded differently. No information about any of the products was provided to participants. This experimental design allows determining if subjects can detect if the two identical products are valued the same (i.e. is the difference in WTP for the two identical products equal to zero?). This can be used to assess whether the number of available alternatives presented to participants affects their ability to differentiate between products. To evaluate consistency of all rounds grapes were included as a substitute control product in all rounds.

Preliminary Results

A premise of excessive choice is that more options raise search costs and the choice task becomes too complex (Iyengar and Lepper 2000). Consumers resort to simplifying decisions by using heuristics and lower search costs: reducing number of attributes considered and time spent choosing. The results show that when fewer alternatives are offered, the variety that is duplicated has different WTP, but those differences become not statistically significant when more than four alternatives are available. A possible explanation is that with fewer alternatives, the search costs are lower, and subjects seek differences between the products offered (even if they are small differences intrinsic of the products). As the number of options increases, so do the search costs, and participants tend to ignore certain attributes and perceived differences between options disappear.

With choice overload there is a loss in utility for each additional unit in the set being considered (Stivers and Tremblay 2005). The data follows this trend as WTP is a decreasing function of the number of alternatives. Presence of the choice paradox challenges rationality, thus anomalies arise. The study also finds more preference reversals (Tversky, Slovic, and Kahneman 1990) as the number of strawberries offered increases.

Due to the high cost of conducting economic experiments, it is common practice to use a large number of product alternatives in experimental auctions. The results of this article have implications in the design of economic experiments using auctions, the theoretical foundation and external validity of the results using these methods.


 

REFERENCES

Burton, Michael, and Dan Rigby. 2012. "The Self Selection of Complexity in Choice Experiments." American Journal of Agricultural Economics 94 (3):786-800.

Dave, Chetan, Catherine C. Eckel, Cathleen A. Johnson, and Christian Rojas. 2010. "Eliciting risk preferences: When is simple better." Journal of Risk and Uncertainty 41:219-243.

Heiner, Ronald A. 1983. "The Origin of Predictable Behavior." The American Economic Review 73 (4):560-595.

Iyengar, Sheena S., and Mark R. Lepper. 2000. "When Choice is Demotivating: Can One Desire Too Much of a Good Thing?" Journal of Personality and Social Psychology 79 (6):995-1006.

Levitt, Steven D., and John A. List. 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?" Journal of Economic Perspectives 21 (2):153-174.

Louviere, Jordan J. 2006. "What You Don't Know Might Hurt You: Some Unresolved Issues in the Design and Analysis of Discrete Choice Experiments." Environmental and Resource Economics 34:173-188.

Stivers, Andrew, and Victor J. Tremblay. 2005. "Advertising, search costs and social welfare." Information Economics and Policy 17:317-333.

Tversky, Amos, Paul Slovic, and Daniel Kahneman. 1990. "The Causes of Preference Reversal." American Economic Review 80 (1):204-217.


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