| Abstract: |
We present a novel experimental method for investigating consumer choice. The
Surplus Identification (S-ID) task is inspired by studies of detection in
perceptual psychophysics. It employs a forced-choice procedure, in which
participants must decide whether a novel product is worth more or less than
the price at which it is being offered, that is, whether there is a positive
or negative surplus. The SI-D task reveals how precision, bias and learning
vary across attribute and price structures. We illustrate its use by testing
for cognitive capacity constraints in multi-attribute choice in three separate
experiments, with implications for models of bounded rationality and rational
inattention. As the number of product attributes rises from one to four in the
S-ID task (Experiment 1), participants cannot integrate additional information
efficiently and they display systematic, persistent biases, despite
incentivised opportunities to learn. Experiment 2 demonstrates how the S-ID
task can be used to track learning and serves as a robustness check for the
findings of Experiment 1. Experiment 3 adapts the S-ID task to test accuracy
of surplus identification when multiple attributes are perfectly correlated.
The S-ID task also has the potential to test multiple aspects of consumer
choice models and to test specific hypotheses about the cognitive mechanisms
behind surplus identification. |