Template-Type: ReDIF-Paper 1.0
Author-Name: Linda Thunström
Author-Name-First: Linda
Author-Name-Last: Thunström
Author-Email: lthunstr@uwyo.edu
Author-Workplace-Name: HUI Research AB
Author-Workplace-Name: Department of Economics and Finance, University of Wyoming
Author-Name: Jonas Nordström
Author-Name-First: Jonas
Author-Name-Last: Nordström
Author-Email: jno@ifro.ku.dk
Author-Workplace-Name: Department of Food and Resource Economics, University of Copenhagen
Author-Workplace-Name: Lund University School of Economics and Management
Author-Name: Jason F. Shogren
Author-Name-First: Jason F.
Author-Name-Last: Shogren
Author-Email: jramses@uwyo.edu
Author-Workplace-Name: Department of Economics and Finance, University of Wyoming
Title: Certainty and Overconfidence in Future Preferences for Food   
Abstract: We examine consumer certainty of future preferences and overconfidence in predicting future preferences. We explore how preference certainty and overconfidence impact the option value to revise today’s decisions in the future. We design a laboratory experiment that creates a controlled choice environment, in which a subject's choice set (over food snacks) is known and constant over time, and the time frame is short -- subjects make choices for themselves today, and for one to two weeks ahead. Our results suggest that even for such a seemingly straightforward choice task, only 45 percent of subjects can predict future choices accurately, while stated certainty of future preferences (one and two weeks ahead) is around 80 percent. We define overconfidence in predicting future preferences as: the difference between actual accuracy at predicting future choices and stated certainty of future preferences. Our results suggest strong evidence of overconfidence. We find that overconfidence increases with the level of stated certainty of future preferences. Finally, we observe that the option value people attach to future choice flexibility decreases with overconfidence. Overconfidence in future preferences affects economic welfare because it says people have too much incentive to lock themselves into future suboptimal decisions.
Length: 26 pages
Creation-Date:  2015-03
File-URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2015/IFRO_WP_2015_04.pdf
File-Format: Application/pdf
Number: 2015/04
Classification-JEL: D03, D12, D83, D90
Keywords: Choice flexibility, Preference uncertainty, Overconfidence, Sub-optimal decisions, Food
Handle: RePEc:foi:wpaper:2015_04