Why More Can Be Less: An Inference-Based Explanation for Hyper-Subadditivity in Bundle Valuation

39 Pages Posted: 15 Apr 2005 Last revised: 30 Jan 2013

See all articles by Peter T. L. Popkowski Leszczyc

Peter T. L. Popkowski Leszczyc

University of Queensland - Business School

John Pracejus

University of Alberta - Department of Marketing, Business Economics & Law

Michael Shen

Independent

Date Written: April 1, 2007

Abstract

We conceptualize, develop, and test a multiple-item bundle valuation model through which decision makers are able to make inferences about the value of uncertain items based on the value of high-certain items. Results of five experiments indicate that bundling a low-value certain item with a high-value uncertain item, which are not substitutes, results in a bundle valuation lower than the value of the uncertain item alone. We refer to this highly unexpected and previously unexplained phenomenon as "hyper-subadditivity." In addition we find that bundling a high-value certain item with a low-value uncertain item leads to superadditivity, even though the items are not complements. We further demonstrate that reducing uncertainty eliminates these effects, and that direct value inferencing (not simple numeric priming, nor inferences about quality) is the most likely mechanism driving these effects.

Keywords: Bundling, auctions, subadditivity, inference

JEL Classification: C91, M31, D44

Suggested Citation

Popkowski Leszczyc, Peter T. L. and Pracejus, John and Shen, Michael, Why More Can Be Less: An Inference-Based Explanation for Hyper-Subadditivity in Bundle Valuation (April 1, 2007). Organizational Behavior and Human Decision Processes, Vol. 105, No. 2, pp. 233-246, 2008. Available at SSRN: https://ssrn.com/abstract=689142

Peter T. L. Popkowski Leszczyc (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

John Pracejus

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada
780-492-2023 (Phone)
780-492-3325 (Fax)

Michael Shen

Independent

No Address Available

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