Imagine you’re sitting at the airport, about to board a flight home after a week away. Over the intercom, you hear that your flight has been overbooked and the airline is offering $200 vouchers to anyone willing to wait for the next plane. What do you do?
China Europe International Business School’s Xilin Li (a recent graduate of Booth’s PhD Program) and Booth’s Christopher K. Hsee presented that scenario to participants in a study on the psychology of financial decision-making. Rational economic theory holds that when offered cash in return for making some sacrifice (such as waiting for a later flight), people consider their current level of wealth before deciding. Because the marginal utility of wealth diminishes, richer people would see less relative usefulness—or marginal utility—in the voucher and be less willing to wait for the $200 than poorer people. Yet in a series of experiments, Li and Hsee find that people generally neglect their wealth in making such choices.
The researchers presented the airline voucher scenario to more than 400 survey participants and asked them how many hours, up to nine, they would be willing to wait to collect the $200. They find no correlation between reported wealth (monthly income) and willingness to wait. The researchers weren’t surprised, as humans are rarely as rational as economic theories assume.
But they can be if prompted, Li and Hsee find after asking some participants about their need for the $200 given their monthly income before having them indicate their willingness to wait for the voucher. Among this group, they find a significant correlation between income and willingness to wait for a later flight. As wealth increased, willingness to be bumped for pay decreased. Specifically, participants who made $500 or less a month were significantly more willing to wait several hours in return for the voucher, and those whose monthly salary was $5,000 or more were significantly less willing.
When survey respondents were asked to imagine being airplane ticket holders who were offered a $200 voucher in exchange for being bumped to a later flight, those with higher incomes were willing to wait fewer hours than those with lower incomes, but only when prompted with questions reminding them of their income level and need for the money. Without the prompts, there was no correlation.
The researchers examined various dimensions of the phenomenon in six other experiments that variously presented participants with scenarios involving savings on a refrigerator purchase, shoe and jacket discounts, prize money, and payment for taking a future survey.
In the pay-for-survey experiment, participants were offered $25 to take a long survey at an unspecified future time and were asked how many hours—up to 6—they would commit to in return for the payout. The researchers find that among participants who were asked first about their earnings, those with lower incomes signed up for longer surveys than those with higher incomes. Absent prompting, the two groups’ responses were about the same.
The experiments involved consumers who were offered the chance to either save, win, or otherwise gain money. But considering marginal utility could also affect how consumers spend their money, the researchers argue.
They speculate, for example, that unprompted, people who enjoy playing video games would not think much of their current financial situation when deciding whether to buy a new game. But if asked to think about how much money they have, richer gamers would be more likely to buy a game and poorer gamers, less likely. The researchers also suggest that fundraisers, when asking for a donation, could remind rich donors how much they earn—and perhaps generate a bigger gift.
Xilin Li and Christopher K. Hsee, “The Psychology of Marginal Utility,” Journal of Consumer Research, June 2021.
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