Designing Choice Sets to Exploit Focusing Illusion

Dezső, Linda and Steinhart, Jonathan and Bakó, Barna and Kirchler, Erich (2016) Designing Choice Sets to Exploit Focusing Illusion. Working Paper. Corvinus University of Budapest Faculty of Economics, Budapest.

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Focusing illusion describes how, when making choices, people may put disproportionate attention on certain attributes of the options and hence, causing those options to be overvalued. For instance, in deciding whether or not to take out a loan, people may focus more on getting the loan than on its small and dispersed costs. Building on recent literature on focusing illusion in economic choice, we theoretically propose and empirically test that focusing illusion can be advantageously exploited such that attention is put back on the ignored attributes. To demonstrate this, we use hypothetical loan decisions where people choose between loans with different repayment plans to finance a purchase. We show that when adding a steeply decreasing-installments plan to the original choice set of not borrowing or borrowing under a fixed-installments plan, the preference for the fixed-installments plan is lessened. This is because preference for the fixed-installments plan shifted towards not borrowing. We discuss potential applications of our results in designing choice sets of intertemporal sequences.

Item Type:Monograph (Working Paper)
Series Name:Corvinus Economics Working Papers - CEWP
Series Number / Identification Number:2016/11
Uncontrolled Keywords:focusing illusion, focus-weighted utility, loan decisions, intertemporal choice
JEL classification:D03 - Behavioral Microeconomics: Underlying Principles
D91 - Intertemporal Household Choice; Life Cycle Models and Saving
Divisions:Faculty of Economics > Department of Microeconomics
Subjects:Decision making
ID Code:2452
Deposited By: Ádám Hoffmann
Deposited On:05 Sep 2016 15:38
Last Modified:05 Sep 2016 15:38

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