A paper co-authored by Haipeng (Allan) Chen has been accepted for publication in the Journal of Consumer Psychology. The paper examines how consumers neglect the cumulative effect in processing sequential changes.

The Early Bird Gets Two Worms

Cumulative Impact Neglect in Processing Sequential Changes

ABSTRACT:

We demonstrate that decision contexts that involve sequential numerical changes over time can lead to suboptimal consumer choices in both incentivized and hypothetical studies. This is because for such changes, an earlier outcome has a cumulative effect on the final total, which consumers tend to ignore. We document the prevalence of consumers’ tendency to neglect this cumulative impact when processing sequential rent increases and price discounts as consumers focus on the naïve totals and trends formed by the consecutive price changes and choose economically inferior options. We propose a nudge that helps alert consumers about the cumulative effects and decrease their tendency to fall prey to this bias. We discuss the theoretical contributions as well as the implications for consumers, managers, and policy makers.