DOES RELATIVE THINKING EXIST IN REAL-WORLD SITUATIONS? A FIELD EXPERIMENT WITH BAGELS AND CREAM CHEESE

Ofer Azar

No 907, Working Papers from Ben-Gurion University of the Negev, Department of Economics

Abstract: Many experiments show that consumers consider relative price differences even when only absolute price differences are relevant from an economic perspective, a phenomenon that was denoted "relative thinking." These experiments, however, were conducted using hypothetical questions. To test whether the relative thinking bias also exists in real-world situations, a field experiment where subjects could purchase either a bagel or a bagel with cream cheese was conducted. The monetary addition for the cream cheese was kept constant ($0.20) in both treatments, but the bagel's price varied ($0.05 in one treatment and $0.30 in the other). Relative thinking then implies that more people should add the cream cheese when the bagel's price is higher, because the relative price increase for the cream cheese is then smaller. However, the results did not document any relative thinking – more people (in percentage of those who purchase) added the cream cheese when the bagel's price was lower (the difference between the treatments, however, was not statistically significant). A replication of the experiment as a hypothetical-scenario experiment did document relative thinking, suggesting that introduction of financial incentives might alleviate relative thinking.

Keywords: Relative thinking; Experimental economics; Field experiment; Financial incentives; Behavioral economics; Product differentiation. (search for similar items in EconPapers)
JEL-codes: C93 D01 D10 L00 M31 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2009
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Citations: View citations in EconPapers (2)

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Journal Article: DOES RELATIVE THINKING EXIST IN REAL‐WORLD SITUATIONS? A FIELD EXPERIMENT WITH BAGELS AND CREAM CHEESE (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bgu:wpaper:0907

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