Overbidding in Value Elicitation: When Consumers Report Inflated Reservation Prices, and What to Do About It

Abstract

A common goal of value elicitation is to determine consumers’ reservation prices (i.e., maximum willingness to pay) for goods and services. Because the results of such studies are often used as inputs in decision making, it is important to understand when reservation prices estimated in value elicitation studies are likely to be biased, and how to correct for such biases. Experiment 1 of this study investigated attributes of the context in which consumers’ values are elicited that may lead to consumers overbidding their true reservation prices. The results demonstrate that the likelihood of overbidding is high when consumers perceive that they will not have to pay their stated reservation price, and particularly high when they also perceive that stating a high reservation price will increase the likelihood of subsequently receiving a good. Experiment 2 demonstrated that priming budget considerations prior to value elicitation produced value estimates closer to the actual price of a good compared to a condition in which budget was not primed. Implications for the practice of value elicitation and the use of estimates provided by such studies in decision making are discussed.