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From teddy bears to iPhones, we overestimate what others will pay for goods

Date:
December 14, 2011
Source:
University of Chicago Press Journals
Summary:
Compared to what they would pay themselves, most consumers overestimate what others are willing to pay for products, according to a new study. And that holds true for a large range of items, both real and imaginary.

Compared to what they would pay themselves, most consumers overestimate what others are willing to pay for products, according to a new study in the Journal of Consumer Research. And that holds true for a large range of items, both real and imaginary.

"People typically overestimate the average willingness to pay in a population, and correspondingly, typically believe that others -- even a specific person sitting next to them -- will pay more," writes author Shane Frederick (Yale University). Frederick found that the average MBA student in his class was willing to pay $27 for the DVDs of the first four seasons of the "Sopranos," but on average those same students estimated that other people would pay $40.

In another experiment, Frederick randomly assigned students to partners and had them bid on items and estimate others' bids. Seventeen out of twenty-one students predicted that the other person would bid more than they themselves would.

"The documented bias appears to hold for all goods," Frederick writes. "It was found not just for DVDs, but also for chocolate truffles, books, teddy bears, sporting goods, iPhones, artwork, and even hypothetical or imaginary goods such as a trip to the moon or a magic pill that confers the ability to speak French."

The author found an average (and robust) bias of +40 percent, which held across a wide range of undergraduates, MBAs, respondents to an online survey broadly representing the U.S. population, and summer picnickers in Boston.

The bias disappears when valuations are measured by non-monetary payments (such as the number of pencils one would be willing to sharpen to acquire a good). The author believes this signifies that many people fail to appreciate others' feelings about spending money.

This overvaluing bias may lead to a tendency for sellers to set prices too high, or for difficulty in negotiation when consumers and sellers have disparate valuations, the author concludes.


Story Source:

The above story is based on materials provided by University of Chicago Press Journals. Note: Materials may be edited for content and length.


Journal Reference:

  1. Overestimating How Much Others Will Pay for Goods. Shane Frederick. Journal of Consumer Research, June 2012 DOI: 10.1086/662060

Cite This Page:

University of Chicago Press Journals. "From teddy bears to iPhones, we overestimate what others will pay for goods." ScienceDaily. ScienceDaily, 14 December 2011. <www.sciencedaily.com/releases/2011/12/111213110523.htm>.
University of Chicago Press Journals. (2011, December 14). From teddy bears to iPhones, we overestimate what others will pay for goods. ScienceDaily. Retrieved August 23, 2014 from www.sciencedaily.com/releases/2011/12/111213110523.htm
University of Chicago Press Journals. "From teddy bears to iPhones, we overestimate what others will pay for goods." ScienceDaily. www.sciencedaily.com/releases/2011/12/111213110523.htm (accessed August 23, 2014).

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