Estimating the efficiency of consumer choices of new automobiles
Journal of Economic Psychology
The available literature indicates that consumers are likely to be less than perfectly informed when confronted with a choice situation. But whether the costs to consumers of imperfect information are large enough to warrant public intervention in markets is still an open question. By studying the optimality of new car choices, we attempt to shed light on this question in this study. We use individual-level preference data to rank the alternatives in each respondent's choice set on the basis of quality. Defining a non-optimal choice as one in which the consumer could have purchased a brand of higher estimated quality for a lower price than the actual choice, we estimate the cost savings that would have resulted from buying the higher quality brand at the lower price. We go on to relate these estimated losses due to non-optimal choices to brands purchased and to consumer characteristics. © 1992.
Original Publication Date
DOI of published version
Gupta, Pola and Ratchford, Brian T., "Estimating the efficiency of consumer choices of new automobiles" (1992). Faculty Publications. 4510.