BackManagement | I’ve changed my mind: choices and preference reversal
Management | I’ve changed my mind: choices and preference reversal
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Let’s say you are thinking of buying a DVD player. You see an ad for one that, although a lesser-known brand, seems to be loaded with features and seems to be reasonably priced. You decide to wait a little before actually making the purchase. A week later, you come across another ad for a DVD player which is a well-known brand with some interesting features at the same price as the player you had considered earlier. You think that this is a great deal and decide to buy this player, but are not able to make the purchase because of an unexpected trip out of town. A month later, you see both these DVD players advertised at the same store for the same price. Is it possible that now you see that the first DVD player is a better deal, even though you had earlier rated the second one higher? Not only is this possible, this happens frequently, and the phenomenon itself is called preference reversal.
How we evaluate our options jointly can be dramatically different from how we evaluate them individually. In a classic study, subjects placed greater value on a small cup overfilled with ice cream than on a larger, under-filled cup. However, when the two cups were placed side by side, subjects’ preferences reversed. More evidence for this reversal of preference was presented by a study where subjects were asked to assess the monetary value of two dictionaries: a large one with 20,000 words but a torn cover, versus a small one with 10,000 words and an intact cover. When assessed separately, the small dictionary with its intact cover was judged to be of higher value. But, when compared side by side, the preference changed to the larger dictionary.
Why do preferences change? There are a couple of possible explanations. The first one is that when we evaluate options individually, we are more likely to be driven by the emotional elements of the decision. When we evaluate jointly, our decisions are driven more by rational determinants. Consider the following example. A firm offers two salary packages. Package 1 pays Rs7 lakh in year one, Rs8 lakh in year two, Rs9 lakh in year three, and Rs10 lakh in year four. Package 2 pays Rs11 lakh in year one, Rs10 lakh in year two, Rs9 lakh in year three, and Rs8 lakh in year four. If asked to evaluate these packages independent of each other, you will probably evaluate Package 1 more favourably. But, if you were to evaluate them simultaneously, Package 2 becomes more attractive. Package 2 is unattractive when assessed individually because emotionally, it is discomforting to accept a declining pay package. It becomes more attractive when you are presented with a more rational comparison of the overall value of the package.
Researchers have proffered another explanation for the reversal. It is possible that the reversal happens because, in the case of joint evaluations, the attribute being considered becomes easier to evaluate when provided with a comparison. Thus, the 10,000-word dictionary is evaluated higher because there is no means to judge if 10,000 words are enough for a dictionary. In the absence of that standard, one goes by what is easier to judge (the condition of the cover).
The implications of this are quite clear. Consistently, behavioural economics research has shown that you evaluate products differently depending on whether you are rating the product separately or whether you are making a choice between two products. When you are comparing two products in order to make a choice, you are more likely to compare them on tangible features that are easy to compare. When you are rating a product independently, you are more likely to base your evaluation on broad attributes like brand.
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Praveen Aggarwal is an associate professor of marketing at the Labowitz School of Business & Economics at the University of Minnesota Duluth and Rajiv Vaidyanathan is a professor of marketing and director of MBA programmes at the University of Minnesota Duluth.
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