WHEN (YOU THINK) MORE LEADS TO LESS: THE ERRONEOUS BELIEF THAT ADDING UNATTRACTIVE ITEMS WILL REDUCE CONSUMPTION (JOB MARKET PAPER)

When firms strategically add more options to an assortment to satisfy heterogeneous consumer preferences, consumers often encounter items in firms’ offerings that they personally find unattractive. In this research, we find that although merely adding unattractive items to an attractive assortment does not affect consumption, people erroneously believe that the addition will reduce the amount they consume. This is because consumers predict the additional unattractive items will cause hedonic assimilation, reducing how much they will enjoy other attractive items. Consequently, they are willing to pay less for the larger assortment with the additional items and are less likely to choose it. We propose that this prediction error is rooted in the different processing modes that consumers adopt for consumption predictions versus actual consumption. Specifically, when making predictions, people consider the entire assortment holistically, including options they would not consume. Considering all the options in an assortment leads consumers to erroneously predict that the presence of the unattractive options will reduce their enjoyment of the other options, thus reducing their overall consumption. By contrast, actual consumption is driven by a series of piecemeal judgments (“Will I have another one?”), which are not affected by the presence of other unattractive options.