Opportunity Cost Neglect

Abstract

To properly consider the opportunity costs of a purchase, consumers must actively generate the alternatives that it would displace. The current research suggests that consumers often fail to do so. Even under conditions promoting cognitive effort, various cues to consider opportunity costs reduce purchase rates and increase the choice share of more affordable options. Sensitivity to such cues varies with chronic dispositional differences in spending attitudes. We discuss the implications of these results for the marketing strategies of economy and premium brands. Students of economics are taught that decisions requirethe consideration of opportunity costs—the unrealized flow of utility from the alternatives a choice displaces (Al-chian 1968; Buchanan 1969; Nozick 1977). The assumption that consumers consider the opportunity costs of a decision is not only upheld as a “law ” of consumer behavior applied to idealized consumers in economic textbooks but also ap-pears to be widely assumed about actual consumers. For example, Becker, Ronen, and Sorter (1974, 327) contend: “Decision makers confronted with a showcase of beluga caviar consider how much hamburger they could buy with the money [that] a pound of caviar costs.... People in-tuitively take opportunity costs into account. ” Okada and Hoch (2004, 313) similarly conclude: “The opportunity cost