Partially Altruistic Consumer Choice in Presence of Consensus Bias

Abstract

There are instances when a consumer’s overall utility depends on her own utility as well as on the utility of another individual (e.g., in case of shared consumption with another individual, or in case of buying a gift for someone). In such instances, in order to make a choice that maximizes her overall utility, the chooser needs to form a belief about the other’s preferences. In presence of consensus bias the chooser believes that her characters are more prevalent in the society, and hence believes that others’ preferences are likely to be similar to her. This paper develops a model of consumer choice that is driven by the utility of the chooser, as well as her expectation about another individual’s utility, in presence of consensus bias. Using the model, we derived the conditions under which the chooser makes a choice that is contrary to her preferences. The result highlights the role of consensus bias in reducing the likelihood of making a preference-contrary choice.