The Bright Side of Bad Choices: Evidence from Restaurant Exploration

34 Pages Posted: 17 Jun 2020

See all articles by Manuel Sosa

Manuel Sosa

INSEAD

Clara Carrera

INSEAD

Victor Martinez-de-Albeniz

IESE Business School - University of Navarra

Date Written: June 16, 2020

Abstract

The value derived from hedonic goods is affected by reference effects at the time of consumption,
usually in the form of quality standards. Consumption typically involves two steps: first, the consumer chooses a given good, among a pool of available choices; then, the consumer experiences the good and derives a satisfaction from it. We investigate the role of references in these two phases, taking into account potential selection bias in the satisfaction outcome. Using novel longitudinal data from restaurant reviews, we find evidence of quality loss aversion in the choice decision, in accordance with prospect theory. That is, people tend to disproportionally avoid choosing restaurants that are below their quality reference. At the same time, choosing a lower-quality good does not penalize satisfaction in the chosen restaurant as much as one would expect, which is consistent with the fact that consumers adjust their expectations downward when they choose a lower-quality option. This suggests that expectation adjustment protects consumers when they make apparent “bad" choices. Given these results, we show that it may be optimal to visit restaurants in a zigzag that alternates between high- and low-quality choices.

Keywords: Online User Reviews, Prospect Theory, Recommendation Systems, Heckman Selection Correction

Suggested Citation

Sosa, Manuel and Carrera, Clara and Martinez-de-Albeniz, Victor, The Bright Side of Bad Choices: Evidence from Restaurant Exploration (June 16, 2020). INSEAD Working Paper No. 2020/29/TOM, Available at SSRN: https://ssrn.com/abstract=3628270 or http://dx.doi.org/10.2139/ssrn.3628270

Manuel Sosa (Contact Author)

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Clara Carrera

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Victor Martinez-de-Albeniz

IESE Business School - University of Navarra ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

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