University of Arkansas

Walton College

The Sam M. Walton College of Business

Presentations and Recent Research

Presentations

Robin Soster

Robin

Wednesday October 28, 12:00-1:00

JBHT 128 (BBRL Conference room)

Title: How focusing on sunk costs can reduce rumination on loss and eliminate the sunk cost effect in preliminary choice settings

Abstract:
Mental accounting research suggests that individuals who incur costs (in the form of time or money) while pursuing an option will be more likely to stick with this initial pursuit than those not incurring costs or incurring fewer costs.

We introduce a technique, cost reclassification, in which we reframe past costs as instrumental toward a newly-available, preferred alternative and hypothesize that this reclassification technique will increase an individual's propensity to switch from their initial cost of action (i.e., the one for which costs have been sunk).

Over a series of four experiments, we use switching behavior as our primary dependent variable to show that, in the absence of cost reclassification (i.e., the control condition), cost magnitude influences the extent to which people are tethered to initial options, consistent with prior work. Furthermore, we show that cost reclassification attenuates this tether whether costs of money or time have been incurred.

Our experiments also provide empirical support for the process by which cost reclassification is effective—it reduces the extent to which individuals ruminate on sunk costs while making the switching decision.

Our final experiment also reveals that representatives of the alternate option may successfully use cost reclassification to encourage switching behavior—so long as they harbor no obvious persuasion motive.

Paper

Li Hao

Title: Understanding Diffusion of Responsibility in Anti-social Behaviors

Friday November 13, 12:00-1:00

JBHT 128 (BBRL Conference room)

Abstract:
We study how the presence of a second sender affects the tendency of sending anti-social offers to the receiver, in a modified sender-receiver game where messages are delivered in person (2-player vs. 3-player games). There are two opposing effects: looking good and generous in front of a peer promotes pro-social behavior, while the diffusion of responsibility effect increases anti-social behavior. We find that the diffusion of responsibility is the dominating factor, as anti-social behavior is significantly higher when a second sender is present in both contexts: the unethical message is deceptive (Hoodwink treatment), or is honest but unfavorable to the receiver (Bitter Pill treatment). Furthermore, we elicited both senders’ reservation prices for sending the anti-social message independently via strategy method, so our result identifies that the diffusion of responsibility effect can be driven from the presence of the second sender alone, and not necessarily through market interactions (i.e. free-form negotiations, double auctions) between senders. Finally, senders’ own normative beliefs on the acceptability of the anti-social offers are predictive of the difference in their anti-social decisions between 2-player and 3-player games; senders’ second-order beliefs on receiver’s own prediction of receiving anti-social offers is highly significant in explaining individual differences in their adoption of anti-social behavior.

 

Tracy Liu

Wednesday November 18, 12:00-1:00
Title: Group identity and cooperation in infinitely repeated games

Andy Brownback

Wednesday December 2, 11:30-12:30
Title: TBA

Recent Research

The Bottom Dollar Effect: The Influence of Spending to Zero on Pain of Payment and Satisfaction

-Robin Soster

As the phrase “bet your bottom dollar” implies, when people are running out of money, they may spend more carefully. But what about once they’ve spent it?

New research finds that people are less satisfied with what they have purchased with their bottom dollar compared to the same purchases made with dollars when they are flush.

In a December 2014 article from the Journal of Consumer Research, researchers had participants first earn resources to fund a budget, and then spend those resources on things like movie downloads. Then they measured how satisfied people were with the movies they had bought. What they found was that participants were less satisfied with the same movie if it was purchased with the very last of a budget than if it was purchased with plenty of money remaining in the budget.

The authors call this “the bottom dollar effect,” and they show it happens because, as dollars are spent, the remaining dollars feel more valuable which makes parting with them more painful. This makes the product feel more costly, so people are less satisfied with what they buy. “Past research has considered how resource availability influences spending. We look at the relationship between the pain of spending and satisfaction, empirically testing the ‘bottom dollar effect’ when people evaluate real products—purchased with real resources,” says Robin Soster, assistant professor of marketing at the Walton College of Business, University of Arkansas.

Other studies in the article explore when spending the bottom dollar will most impact satisfaction. For example, the authors find that if a consumer thinks it is difficult to earn resources to replenish her budget, or if their budget won’t be replenished for a long time, satisfaction with the same item ends up being lower. The authors also find that getting free money—just as budgets are running out—increases satisfaction with what was purchased more than getting the same windfall if one already has plenty of resources. These findings are important from a consumer well-being perspective because they reveal that satisfaction is influenced by more than the experience of a product and its cost. It is also influenced by how painful it feels for consumers to part with their money, and this pain is higher when consumers are running out of money compared to when they are flush. So two people purchasing a ticket for the same film at the same price may experience significant differences in satisfaction with the movie, based solely upon their entertainment budget’s balance when that ticket is purchased.

Other practical implications arise from these findings. First, since most consumers’ budgets follow cyclical patterns—increasing from inflows of money like pay checks; decreasing from outflows like regular expenses and bills —we may all suffer from ups and downs in satisfaction due to the ebbs and flows of our account balances. In addition, some people may be particularly susceptible to these variations in satisfaction.

For example, people receiving wages on a daily basis might experience the bottom dollar effect more often than those receiving a set salary on a monthly or bi-monthly basis. Those who pay more attention to their personal budgets may also experience this effect more often than those who pay little attention to financial matters. In this manner, people who engage in positive financial behaviors, such as creating and/or sticking to budgets, may actually experience negative outcomes—less satisfying consumption experiences. These outcomes are important for researchers and policy makers investigating impoverished or disadvantaged consumers as well as outcomes related to financial planning or decision making.

Retailers and marketers may find these results important because when satisfaction is influenced by bottom dollar spending, it is possible that consumers may believe they have received a “bad deal,” and this may make it less likely that they will buy that product again. Yet the results suggest ways in which marketers may combat the bottom dollar effect simply by adjusting promotion strategies. For example, if a consumer is not satisfied with a product the first time he tries it, he may never buy it again, so to increase the likelihood that consumers will be satisfied, marketers might use advertising and other promotions at the beginning of the month, or just after consumers get tax refunds, to make it more likely that budgets are not approaching exhaustion at the time of purchase.

The end of the month, when more consumers are likely to be spending their bottom dollars, may be the time to use special pricing incentives–like surprise coupons– to reduce the pain of paying, not only to make the sale, but also to increase satisfaction.

While some people may be able to mitigate the effects of bottom dollar spending by just ignoring their budgets, a more fiscally-responsible response to our findings would be to make important purchases only when budgets are flush with resources. Although waiting a day or two for one’s paycheck receipt may be a difficult exercise in self-control, our findings suggest that waiting may actually increase happiness. As Annie said, “Bet your bottom dollar that tomorrow, there’ll be sun!”