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Reference Dependence and Choice Overload

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  • Deb, Joyee
  • Zhou, Jidong

Abstract

This paper offers an explanation for choice overload based on reference-dependent preferences. Consumers construct an ideal object that combines the best attributes of all objects in their choice set, and use this as a reference point. When the choice set expands, it is more likely to find a better object, but meanwhile the reference point improves, which makes all existing objects appear worse. We characterize when the latter reference-dependence effect dominates such that choice overload arises. We also show that purchase probability can decrease with object complexity, measured by the number of attributes.

Suggested Citation

  • Deb, Joyee & Zhou, Jidong, 2018. "Reference Dependence and Choice Overload," MPRA Paper 86261, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:86261
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    File URL: https://mpra.ub.uni-muenchen.de/86261/1/MPRA_paper_86261.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Chowdhury, Shyamal & Smits, Joeri & Sun, Qigang, 2020. "Contract structure, time preference, and technology adoption," GLO Discussion Paper Series 633, Global Labor Organization (GLO).
    2. Chowdhury, Shyamal & Smits, Joeri & Sun, Qigang, 2020. "Contract Structure, Time Preference, and Technology Adoption," IZA Discussion Papers 13590, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    choice overload; reference dependence; loss aversion;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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