Pay More Save Less: The Paradoxical Time-Saving Bias in Consumerss Choice

Abstract

Some products and services (e.g., toll roads, Internet speed, electronics, etc.) offer consumers higher operating speeds that save time for completing a task (e.g., a journey or downloading files on the Internet). Consumers interested in such products have to judge the benefit of obtaining a higher speed product, in terms of time-savings, to decide whether or not to purchase it. However, previous research has shown that people’s intuitions about time-savings are biased, suggesting that consumers’ judgments and preferences for products with different speeds could be biased as well. In a series of studies, I find that consumers indeed err in such judgments and overestimate increases from higher speeds while underestimating increases from lower speeds. Moreover, these faulty judgments lead consumers to over-pay for increases that are made from higher speeds and under-pay for increases from lower speeds. Consumers seem to base their preferences on the simple differences between the speeds, disregarding the high impact of the initial speed. This Difference Heuristic leads consumers to be willing to pay more (money) to save less (time).