Easterners search too long for good deals after incurring ‘sunk costs’ from earlier search efforts, finds study at Cambridge Judge Business School.
Easterners are more inclined than Westerners to search too long online for the best deals because they are more sensitive to the “sunk cost” of their previous search efforts, according to a study at Cambridge Judge Business School.
There is always a trade-off in search decisions between the potential of getting a better deal by searching more and the costs of searching (time and effort).
The study – entitled “Culture Moderates Biases in Search Decisions” – found that Easterners tend to search more than they should following prior extensive search efforts. The study has been accepted for publication in a forthcoming issue of the journal Psychological Science.
“We found that Easterners search longer than the cost-effective benchmark when search costs become high, but not Westerners,” said Vincent Mak, University Lecturer in Marketing & Decision Sciences at Cambridge Judge Business School, who has also conducted several other detailed behavioural studies concerning online search.
“As search costs accumulate, Easterners become more ‘obsessed’ than Westerners with getting a really good deal to justify all the effort spent,” said Mak, a native of Hong Kong.
That’s often not the best decision, because it’s like a person in a hole who digs a bigger hole.
In academic terms, search is a form of “sequential decision making” for which there is an “optimal stopping” point at which further effort is not worth the potential for finding a better deal. Going beyond that optimal point by hitting the “Search” button once again is the equivalent of digging a bigger hole for oneself, albeit (unlike digging another spadeful) one with potential for future uplift.
The study involved hundreds of university students at Cambridge University in the UK and Chulalongkorn University in Bangkok, Thailand. It was co-authored by Mak and Jake Pattaratanakun, a Thai native who is a PhD student at Cambridge Judge as well as a lecturer in Marketing at Chulalongkorn University.
Although the research focuses on students in the UK and Thailand, the authors believe that the cultural characteristics central to the study also apply more broadly to other Easterners and Westerners.
Mak conjectures that the findings could reflect previous research showing that Easterners may be more prone to take risk when financial gains (such as potentially better price deals) are involved; because sunk costs represent a loss, this drives risk-taking people to try to recoup losses through additional searching in the face of uncertainty.
The study involved the online purchase of a virtual product with a known value (700 tokens in this case) and a price quote that is randomly generated by each search within controlled deviations; there is a cost associated with each sequential search (in most of the tests, beginning with five tokens and then increasing in multiples of five tokens in subsequent searches). So each participant’s net payoff – a key number for this study – is 700 tokens minus both the purchase price obtained and all accumulated search costs. (The tokens are converted to real currency at the end.)
To test the assumption that it is cultural differences that drive Easterners to over-search when sunk costs are high, the study checked whether language used in the study may be able to skew results by “switching on” subjects’ cultural mindset in the direction of the language. So the experiment was repeated with Thai students recruited from an international business programme who come from a bilingual, bicultural background. This time, purchase patterns of the Thai students participating in English were “largely the same” as UK students, but the patterns were “markedly different” when the bicultural participants conducted the experiment in their Thai language; “the main difference is that the latter tended to make more long searches before making purchases.”
The study also further tested the “sunk costs” findings in an additional set of tests. While earlier testing rounds told all participants of their accumulated search costs, the additional tests did not inform participants of these sunk costs – and found that in this case purchase patterns were largely the same between Eastern and Western participants.
“This observation is consistent with our premise that sunk cost effects are a key driver of the cross-cultural differences in biases in search decisions,” the study concluded.