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Subjective Knowledge and Consumer Choice

Final Report Summary - SUBJECTIVE KNOWLEDGE (Subjective Knowledge and Consumer Choice)

The ability to make a wise choice crucially depends on consumer knowledge. Consumer researchers frequently distinguish between objective knowledge (OK), accurate product-related information stored in memory such as product-related terminology or relevant attributes, and subjective knowledge (SK), the extent to which people feel knowledgeable and their confidence in their knowledge (e.g. Brucks, 1985; Carlson, Vincent, Hardesty, & Bearden, 2009). Although it may be assumed that OK and SK are positively and strongly correlated, past research has shown that they are distinct constructs that have unique antecedents, different impact on search and choice behaviors, and that the correlation between them varies substantially (Carlson et al., 2009). Despite the evidence for the dissociation between OK and SK, most existing research has focused mostly on OK, and very little research has been conducted to document the unique impact of SK on judgment and choice processes. The current project was designed to fill these theoretical gaps by examining the impact of SK on judgment and choice processes, controlling for the impact of OK.
A first set of studies examined the role of SK versus OK in financial choice. In a series of four studies we manipulated SK via asking participants easy or difficult questions, using jargon or easy to understand words, manipulating the knowledge participants had relative to options in previous tasks, or explicitly blotting out relevant information. OK was either held experimentally constant, or manipulated. Results indicated that (1) willingness to pursue a risky investment increases when SK is high (versus low) relative to a prior investment choice; (2) willingness to enroll in a retirement saving program is enhanced by asking consumers an easy (versus difficult) question about finance thereby increasing SK; (3) technically elaborating information concerning a mutual fund diminishes SK concerning that investment and decreases choice of that fund; and (4) consumers invest less money in funds when missing information is made salient, holding the objective investment information constant. Further, these effects are mediated by participants’ self-rated SK. Based on these results we proposed that consumer education programs, which typically aim to enhance OK, should put more emphasis on consumers' confidence in their knowledge (Hadar, Sood, and Fox, 2013, Journal of Marketing Research).
The second set of studies focused on the role of SK in deciding on optimal choice set size. Previous research has found mixed evidence regarding whether consumers are more likely to purchase from small or large choice sets. We hypothesized that the effect of choice set size on willingness to purchase is moderated by consumers' subjective knowledge (SK). The results of three studies that manipulated SK through the presentation of a more or less knowledgeable reference group, or false feedback on a knowledge test, provide converging evidence that, paradoxically, people who feel unknowledgeable (low SK) in a certain domain are especially willing to purchase when more choice options are available, consistent with the notion of "more is better". This pattern reverses for high SK people, consistent with choice overload. We also show that this pattern is influenced by the informativeness of the features of the available choice options and that SK mediates this effect. These results suggest that marketers and policy makers should consider how knowledgeable decision n makers typically feel in the relevant product category/domain when deciding on the number of options offered. Specifically, more options should be provided in domains where people often feel ignorant (e.g. wine, health insurance, retirement plans) while few options should be offered in domains where people tend to feel knowledgeable (e.g. soft drinks, familiar medical drugs, simple saving instruments) (Hadar and Sood, forthcoming, Psychological Science).
A third set of studies examined the effect of consumer experience (an antecedent of SK) on preferred pricing strategies. We manipulated consumer experience with frequency versus depth pricing patterns and asked participants to make repeated choices between two retailers adopting these two different strategies, and to retrospectively judge the average price offered by each retailer. The frequency retailer offered frequent yet small discounts while the depth retailer offered infrequent large discounts. Importantly, the regular and average prices offered by the two retailers were equal. The results consistently showed that while consumers judged the average price of the depth retailer as lower than the average price of the frequency retailer, they were significantly more likely to choose the frequency retailer. The results further suggest that retailer choice is driven by consumers' perceptions of which retailer is cheaper more often rather than by their average price perceptions. These findings suggest optimal pricing strategies for retailers (Danziger, Hadar, and Morwitz, forthcoming, Journal of Consumer Research).
A fourth set of studies examined the effect of low versus high SK on consumers' tendency to use choice heuristics including the tendency to prefer compromise options, dominating options, and choice deferral. The results indicate that low SK consumers are more like to use these heuristics than high SK consumers. We are currently collecting more data on variables mediating these effects.
Together, the findings of this research project illustrate the unique influence of SK on financial choice, and retailer choice, and proposes how consumer financial education programs, choice sets, and pricing patterns, may better designed to suit decision makers' needs and preferences.
During the tenure of this project Dr. Hadar developed strong relationships with researchers in Israel and abroad, taught several classes (Research and theoretical seminars on Consumer Behavior at the undergraduate and graduate levels, Research Methods, Marketing Research, Critical Thinking, and Consumer Behavior) and supervised three Master Theses.
Dr. Hadar has also shown her strong ability to communicate her research aims and to work collaboratively in research teams by publishing three papers in leading top peer-reviewed journals and presenting papers in international and national conferences (see dissemination section).