Monday, November 13, 2023
5:15 PM - 6:45 PM
Nudging the Demand for Cars through Opportunity Cost Reminders
Session ID
Poster Presentations
Li Yu Oon

Economists traditionally assume that decision makers consider both explicit and implicit costs, like opportunity costs, in their decisions. However, Fredrick et al. (2009) found that decision makers suffer from Opportunity Cost Neglect (OCN) in small-value purchases, systematically ignoring opportunity costs, which can lead to excessive demand levels. This study addresses an existing research gap by investigating for OCN’s presence in large-value purchases by looking at car purchasing decisions in Singapore, one of the costliest countries for car ownership. As large-value purchases differ from small-value purchases in cost and pre-purchase planning, decision makers may be more deliberate, calculative, and less susceptible to OCN when making decisions concerning them. We postulate that techniques for overcoming OCN in small-value purchases might be less effective for large-value purchases. To our surprise, we were proven wrong. In a randomized controlled trial of 270 non-car owners in Singapore on hypothetical car purchase decisions, we found that participants in the first treatment group who received a simple opportunity cost reminder - “keep SGD$30,000 (~US$20,000) for other purchases" - exhibited a 60%-point decrease in the odds of choosing to buy a car compared to the control group that did not receive the reminder. This translates to a 12%-point reduction in selecting “yes” to the car purchase decision. As a secondary finding, presenting examples of alternative use cases of the money saved, like vacations or saving for the future in a second treatment condition yielded no further difference from the first. In conclusion, the study detected OCN in large-value purchases. Taken together, our research and Fredrick et al.’s previous findings suggest that OCN is present across a wide spectrum of low to high-value purchasing decisions. Tools to tackle OCN, such as reminders of opportunity costs, remain effective nudges to influence choice.

Supporting Document 1