The over‐diversification effect: Enhancement in perceived heterogeneity of multiple (vs. single)‐others' preferences

Abstract

AbstractConsumers often make decisions for multiple‐others when they do not know each one's true preferences. Under such circumstances, we demonstrate perceptions of enhanced preference heterogeneity for multiple‐others, relative to the perceived preference of single‐others. As a result, choices for multiple‐others are more diversified than those for single‐others. We attribute this effect to the perceived uniqueness of others in the multiple‐other setting. Notably, when others are perceived as particularly unique, the inclination toward over‐diversification intensifies. However, this diversification often leads to choices that do not align with the true preferences of the individuals, causing potential mismatches in demand and supply. We conclude with a discussion on the implications of these findings for managers and suggest avenues for future research.