Can Consumers Learn Price Dispersion? Evidence for Dispersion Spillover across Categories

Abstract

Dispersion knowledge—the beliefs that consumers have about the minimum, the maximum, and the overall variability of values in a distribution—is a key antecedent of many consumer judgments and decisions. This paper examines consumer’s ability to form accurate dispersion knowledge in multi-category environments. Ten studies provide evidence for a phenomenon we call dispersion spillover: Seeing more (vs. less) dispersed prices in one category inflates people’s perception of price dispersion in another category. Dispersion spillover is consequential: It influences judgments of price attractiveness, the likelihood that consumers will search for (and find) better options, and how much consumers bid in auctions. In several studies, we examine the mental representations that underlie dispersion spillover with a graphical “distribution builder” tool. Our data suggest that dispersion knowledge is not only based on exemplar memory: People also seem to form and apply “intuitive statistics” that summarize the distributions they have seen, but these representations of dispersion are not entirely category-specific. To encourage and facilitate future investigations, we share distBuilder, an open-source JavaScript library that allows researchers to add distribution builders to their studies with minimal programming knowledge and effort.