Compromise effect and consideration set size in consumer decision-making

Abstract

The compromise effect dictates that a decision-maker chooses a middle option over an extreme one given a set of choice alternatives since choosing an intermediate option is easier to justify, less likely to be criticized, and is consistent with loss aversion. Our experiment is designed to identify whether the connection between the extremeness of the options and the size of the consideration sets is economically and statistically significant and thus would have important behavioural implications. Specifically, we compare decision-making under small and large consideration sets where the extremeness of the comprising choice options is high, as opposed to low. The results demonstrate that an increase in consideration set size leads to weaker compromise effect (i.e. boundary condition) but when composed of high extremeness, strengthens the compromise effect.