Experiments Show When Consumers Are Vulnerable to Mistakes
Consumers are likely to make costly mistakes when descriptions of products force them to think about too many things at once, according to a new ESRI report, PRICE Lab: An Investigation of Consumers’ Capabilities with Complex Products, published today, Friday 13 May. The findings are the first to emerge from the ESRI’s PRICE Lab, a laboratory set up to conduct experiments with Irish consumers.
PRICE Lab is a research programme in behavioural economics, jointly funded by the Central Bank of Ireland, the Commission for Communications Regulation, the Commission for Energy Regulation and the Competition and Consumer Protection Commission. The lab uses computerised experiments to study what consumers are capable of and what they are not.
The experiments described in the report systematically tested how accurately consumers could distinguish good deals from bad deals. The results showed that once consumers had to take into account more than two or three factors at the same time, they struggled to spot good deals and often made mistakes.
The findings also revealed systematic biases in consumers’ choices. Across multiple experiments, consumers tended to think that deals closer to the top of the product range were good value while deals closer to the bottom were bad, even when the high-end products were expensive for what they were and the low-end products were good value at the price listed.
The report discusses implications of the results for consumer protection. The findings suggest that consumers can benefit if product ranges and descriptions are kept simple. Where companies instead market products in an unnecessarily complex fashion, with multiple characteristics and price components, consumers will be more likely to make mistakes. In markets where consumers struggle with the volume or complexity of product information, comprehensive, independent price comparison sites can play an important role, by helping consumers to integrate the information or by drawing consumers’ attention to the most important product features.