Affiliation:
1. Federal Reserve Bank of New York
Abstract
This paper investigates whether the range of an attribute's outcomes in the choice set alters its relative importance. I derive distinguishing predictions of two prominent theories of range‐dependent attribute weighting: the focusing model of Kőszegi and Szeidl (2013) and the relative thinking model of Bushong, Rabin, and Schwartzstein (2021). I test these predictions in a laboratory experiment in which I vary the prices of high‐ and low‐quality variants of multiple products. The data provide clear evidence of choice‐set dependence consistent with relative thinking: price increases that expand the range of prices in the choice set lead to
more purchases. Structural estimates imply economically meaningful effect sizes: the average participant was willing to pay around 17% more when a seemingly irrelevant option is added to their choice set.
Subject
Economics and Econometrics
Cited by
12 articles.
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