The Bright Side of Lower Quality: Evidence from Restaurant Exploration

53 Pages Posted: 17 Jun 2020 Last revised: 3 Aug 2023

See all articles by Clara Carrera

Clara Carrera

INSEAD

Victor Martinez-de-Albeniz

IESE Business School - University of Navarra

Manuel Sosa

INSEAD

Date Written: August 02, 2023

Abstract

The value derived from hedonic goods is affected by reference effects at the time of consumption,
usually in the form of quality standards. Consumption typically involves two steps: first, the consumer chooses a given good, among a pool of available choices; then, the consumer experiences the good and derives a satisfaction from it. We investigate the role of references in these two phases, taking into account potential selection bias in the satisfaction outcome. We develop a flexible framework for quality references, that can include one's own past experiences, as well as that of others, and can give salience to more recent or more distant experiences. Using novel longitudinal data from restaurant reviews, we find evidence of quality loss aversion in the choice decision, in accordance with prospect theory. Surprisingly, for those choices of lower quality, satisfaction is not negatively affected as much as one would expect. This is consistent with consumers adjusting their expectations downward and suggests that expectation adjustment protects consumers when they experience a lower-than-reference quality. Our results imply that it may be better to visit restaurants in a zigzag that alternates between high- and low-quality choices, compared to in crescendo or U-shaped ordering.

Keywords: Online User Reviews, Prospect Theory, Recommendation Systems, Heckman Selection Correction

Suggested Citation

Carrera, Clara and Martinez-de-Albeniz, Victor and Sosa, Manuel, The Bright Side of Lower Quality: Evidence from Restaurant Exploration (August 02, 2023). INSEAD Working Paper No. 2023/44/TOM, Available at SSRN: https://ssrn.com/abstract=3628270 or http://dx.doi.org/10.2139/ssrn.3628270

Clara Carrera

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Victor Martinez-de-Albeniz

IESE Business School - University of Navarra ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Manuel Sosa (Contact Author)

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

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