This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via Google Scholar Google Scholar Articles by Meyer, R. J. Articles by Han, J. K. Search for Related Content

Biases in Valuation vs. Usage of Innovative Product Features

The Wharton School of Business of the University of Pennsylvania, Philadelphia, Pennsylvania 19104, and School of Business Administration, University of Miami, Coral Gables, Florida 33124
School of Business Administration, University of Miami, Coral Gables, Florida 33124
Lee Kong Chian School of Business, Singapore Management University, Singapore 178899
meyerr{at}wharton.upenn.edu
szhao{at}miami.edu
jkhan{at}smu.edu.sg

We investigate biases in product valuation and usage decisions that arise when consumers consider a new generation of a product that offers an expanded set of capabilities of uncertain value. Two experiments using a novel computer game show evidence of a valuation-usage disparity: Participants display a high willingness to pay for a new version of the game that offers a new set of controls, but fail to fully exercise the option to use these controls after purchase. This discrepancy is attributed to a fundamental difference in how new capabilities are valued at the time of purchase versus use. Consumer usage decisions appear to be driven by such myopic concerns as a desire to avoid short-term learning costs, whereas purchase decisions often fail to take into account the factors that drive usage, and are further inflated by global optimism in the future usefulness of new capabilities. We show that this lack of foresight can be explained by an intertemporal judgment model in which consumers attempt to value the option to use new capabilities as would be prescribed by economic theory, but are prone to hyperbolic discounting in their temporal valuation of present versus future costs and benefits.

Key Words: new product adoption; judgment under uncertainty; hyperbolic discounting; optimism bias; projection bias; option theory
History: Received: October 21, 2004;