Efficiency of consumer intertemporal choice under life cycle cost conditions

Yehoshua Liebermann, Meyer Ungar

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

Abstract

Many decisions made by consumers are intertemporal. Life cycle cost (LCC) conditions represent a specific type of intertemporal decisions, typically referring to items involving two cost components: present purchase price and future maintenance costs. This paper presents a conceptual framework for analyzing consumer LCC decision making. Within this framework the notion of choice efficiency is highlighted. The main contribution of the study is the direct estimation of consumers' choice efficiency, as compared to previous studies that estimate only consumers' implicit discount rates. Effects of situational and personal variables on efficiency of choice are estimated by means of a series of manipulated choice settings. The main empirical findings show situational effects of monetary size, type of object and time horizon. Additional findings show the effect of personal variables such as gender, marital status and education.

Original languageEnglish
Pages (from-to)729-748
Number of pages20
JournalJournal of Economic Psychology
Volume23
Issue number6
DOIs
StatePublished - Dec 2002

Bibliographical note

Funding Information:
As far as the situational hypotheses are concerned, the data confirm them partially. No hypotheses were formulated for personal effects due to the lack of a systematic research paradigm that is applicable to relating such effects to efficiency behavior. The situational hypotheses concern consistency in efficient selections and the effect of size, type of object and time horizon. Specific directions of effects have been predicted for efficient and consistently efficient behavior (H1 and H2), and size (H3). The remaining situational effects, namely type of object (H4) and time horizon (H5), were predicted to influence efficient behavior although with no predetermined direction. Overall, the results seem to render some support to the economic approach to intertemporal decisions. The confirmation of H1 (individuals make efficient selections) and H5 (longer time horizons reduce efficiency) indicate quite clearly that in certain choice situations individuals use economic considerations as a guide to their decisions. This pattern is further supported by the partial confirmation of H2 (consistent efficient selections).

Keywords

  • Efficiency
  • Intertemporal decision making
  • Life cycle cost

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