Testing the Role of Contextual Deliberation in the Compromise Effect

Many phenomena of preference construction demonstrate a violation of the rationality premise in classical economic theories. One of the most well-known examples of preference construction is the compromise effect. This puzzling anomaly can be rationalized by contextual deliberation (i.e., endogenous information retrieval/acquisition that can partially resolve utility uncertainty before choice). In this research, we investigate the empirical validity of this explanation by performing falsification tests for its necessary predictions and identifying it from other potential accounts. We conduct five experiments with more than 1,000 participants and show that the compromise effect can be positively mediated by response time and cannot be eliminated by context information, but it can be moderated by manipulating the level of deliberation (i.e., time constraint, preference articulation, task order). These findings are consistent with the predictions of the theory of contextual deliberation. We also show that, on average, contextual deliberation (as proxied by response time) can uniquely account for about half of the total compromise effect. This paper was accepted by Yan Chen, behavioral economics and decision analysis

How More Options Decrease the Compromise Effect: Investigating Boundary Conditions for the Compromise Effect in Travel Decisions

Travelers often demonstrate the compromise effect—a tendency to choose the intermediate option(s) when facing difficult trade-off decisions. The compromise effect has been replicated in very specific settings where typically only two or three options were available. This research extends our understanding of the compromise effect by examining the impact of the number of options on travelers’ choices. Based on two different accounts (i.e., attribute distance account vs. decision complexity account), we predict that the compromise effect will be attenuated as the number of options in a choice set increases. Four experimental studies provide supporting evidence for this argument and support the attribute distance account as the main underlying mechanism. This research contributes to the extant tourism and travel choice literature by responding to the call to investigate the compromise effect in complex buying contexts.

The Attraction and Compromise Effects in Bargaining: Experimental Evidence

We experimentally investigate, in an unstructured bargaining environment with commonly known money payoffs, the attraction effect and compromise effect (AE and CE) in bargaining, namely, a tendency for bargainers to agree to an intermediate option (CE) or to an option that dominates another option (AE). We conjecture that the relevance of the AE and CE in bargaining is constrained by how focal the feasible agreements’ payoffs are. We indeed observe that there are significant AEs and CEs, but these effects are mediated by the efficiency and equality properties of the feasible agreements. Due to the allure of equality, the effects are harder to observe when an equal earnings contract is available. Decoys are more effective in shifting agreements from a very unequal contract to a less unequal one rather than the reverse. This paper was accepted by Yuval Rottenstreich, behavioral economics and decision analysis.

Trade-Offs in Choice

To explain trade-offs in choice, researchers have proposed myriad phenomena and decision rules, each paired with separate theories and idiosyncratic vocabularies. Yet most choice problems are ultimately resolved with one of just two types of solutions: mixed or extreme. For example, people adopt mixed solutions for resolving trade-offs when they allow exercising to license indulgence afterward (balancing between goals), read different literary genres (variety seeking), and order medium-sized coffees (the compromise effect). By contrast, when people adopt extreme solutions for resolving these exact same trade-offs, they exhibit highlighting, consistency seeking, and compromise avoidance, respectively. Our review of the choice literature first illustrates how many seemingly unrelated phenomena actually share the same underlying psychology. We then identify variables that promote one solution versus the other. These variables, in turn, systematically influence which of opposite choice effects arise (e.g., highlighting versus balancing). Finally, we demonstrate how several mistakes people purport to make can potentially instead be reinterpreted as mixed solutions for resolving trade-offs. We conclude with guidance for distinguishing mistakes from mixed solutions.

IMPACT OF INTRODUCING THE MIDDLE ALTERNATIVE: META-ANALYTIC APPROACH

This paper explores the impact of adding a compromise alternative into the choice set taking into account the previous findings in the literature. The paper takes a meta-analytical approach when examining the results of previously published peer-reviewed studies which included specific product categories in their study design. The literature selection process generated 69 choice set comparisons across 8 scientific studies including over 14 000 individual observations which allow examining the compromise effect in a broader view.

The Effect of Compensation Caps on Risk-Taking

Using an experiment, we investigate the joint effects of compensation caps and formal justification requirements on risk-taking. Compensation caps restrict the earnings potential of decision-makers and have been implemented to influence risk-taking behavior, especially after the financial crisis. Rational choice theory predicts that caps should restrict only risk-seeking decision-makers from taking undesired risk and not affect risk-averse decision-makers. Based on the compromise effect, however, we predict that compensation caps will also affect risk-averse decision-makers. Moreover, we posit that the effect of compensation caps on risk-averse decision-makers is stronger in the presence of high justification pressure. Our results support both hypotheses and indicate that compensation caps have unintended consequences. In particular, risk-averse decision-makers also take less risk when their compensation is capped, especially in combination with justification requirements, which are another frequently used instrument to steer risk-taking. The result might be dysfunctionally low levels of risk-taking for exploiting entrepreneurial opportunities.

Drivers and inhibitors of the compromise effect – a conceptual overview

Purpose This paper aims to review numerous known drivers and antecedents of compromise behavior, proposing a basic categorization of the various contributions. This is done with the goal to integrate drivers and antecedents, previously largely discussed in isolation of one another, into a single conceptual model. This sheds light on the issue of previously overstated or understated relevance of individual drivers. The picture is completed by the proposition of new potential drivers of the compromise effect like lay rationalism and approval motivation. Design/methodology/approach The paper takes a conceptual approach in reflecting on prior findings from the field of compromise effect research and adjacent fields to develop a number of propositions aggregated in a conceptual model. Findings A number of previously overlooked, but potentially highly relevant interaction effects among known drivers of the compromise effect are proposed along with the proposition of several new drivers. Originality/value This conceptual paper offers a novel, broadly applicable categorization of compromise effect research. Further, it seems to be the first paper dedicated to an extensive review of established drivers of the compromise effect to examine the interdependence and possible interaction effects and of those drivers. Additionally, completely new potentially relevant drivers are discussed in detail and integrated into a conceptual model.