Many types of purchase decisions, such as that of a car or even a new home, can draw thoughtful consideration from consumers. Consumers may actively research the options, list the pros and cons, and aim for the most well-informed decision.
Consider the current housing market. With homes rapidly entering and exiting the market, potential homebuyers may make the decision about whether to purchase a home quite rapidly. As consumers weigh their decisions based on typical attributes such as square footage, location, and neighborhood, new research from Professor Taly Reich suggests that the introduction of additional homes to the market may change how consumers prioritize various attributes of a home. In the end, the evolving set of choices available may cause the consumer’s preferences to shift, such as by causing the size of a home to become a more important consideration than proximity to a preferred school district, or vice versa.
Professor Reich demonstrates the way in which slight changes in the way possibilities are presented shifts the attributes we pay most attention to, and alters the choices that we make, whether large or small. Reich’s research, conducted with Jennifer Savary at the University of Arizona and Daniella Kupor at Boston University, not only sheds critical new light on the pliability of consumer preferences, but also unifies and significantly advances foundational theories in behavioral economics.
For decades it has been understood that people make decisions based on “focal” characteristics. When considering an apartment to rent, for instance, one frequent challenge is balancing price against location: should I pay more for a better location or less for a worse location? In the final calculus, though, usually only one of these two competing variables — price or location — ends up carrying most of the weight.
How one characteristic or another becomes the point of focus is complicated, but a key factor is the degree of variation. If rents among three apartments vary little ($900, $925, and $950) but location quality varies greatly (windowless garden apartment, noisy street, beachside), then location will become the focal point. Alternatively, if rent varies tremendously but location does not, then rent becomes the focal point.
On top of this established foundation, Reich and her colleagues overlay a critical question: What happens when we aren’t making a choice between a fixed set of possibilities, but a dynamic one?
Dynamic choice sets are increasingly common in today’s fast paced digital-information environment.
“Dynamic choice sets are increasingly common in today’s fast paced digital-information environment,” Reich and her colleagues write. When shopping online, for instance, “consumers may build an initial consideration set and then add to it when they encounter a new option.” So how does this dynamism influence what we ultimately choose?
In five studies, the researchers tease out the way in which introducing new choices can predictably shift what people focus on and, importantly, why this shift takes place. In one experiment, for instance, participants were asked to imagine they were buying a car; the cars varied in terms of fuel efficiency and ride quality: Car A was most efficient with the worst ride quality, Car C had the best ride quality and worst efficiency, and Car B sat in the middle.
One group of participants viewed all three options at once (“static” condition). A second group at first viewed two of the cars, and then the remaining car—the car with the worst efficiency—was introduced just moments later. A third group also at first viewed two of the cars, but this time the “middle of the road” option was introduced just moments later. Reich found that when the least efficient car was presented later, far more people chose based on fuel efficiency than they did in the static condition (53% vs. 33%). However, when the medium efficiency option was introduced later, far more people chose based on ride quality than in the static condition (46% vs. 11%).
“People who view the identical final choice set systematically make different choices as a function of whether or not those identical choices are dynamically presented,” the researchers write. And why? In this case, introducing a car with even worse fuel efficiency than what’s previously been seen emphasizes the variability in efficiency, and therefore increases focus on that attribute. Introducing the choice of the car with middling fuel efficiency, however, makes people perceive less variation in efficiency—it sits right between the extremes they already know—and so ride quality instead becomes the focal attribute. (The other four studies support this result.)
The researchers note that, alongside the core theoretical contributions to choice architecture, these findings have additional important implications. When managers are debating the timing of a new product launch, for instance, this research clarifies the importance of assessing not just the relative advantages or disadvantages of the new launch, but also the effect that the launch timing may have on the consumer’s area of focus. This may, in turn, influence how the marketer thinks about displaying or highlighting certain attributes of the launch. Digging into the influence of dynamic choice, they write, “has the potential to enhance our understanding of both context effects and human decision-making.”