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Opportunity Cost Consideration Opportunity Cost Consideration STEPHEN A. SPILLER Normatively, consumers should incorporate opportunity costs into every decision they make, yet behavioral research suggests that consumers consider them rarely, if at all. This research addresses when consumers consider opportunity costs, who considers opportunity costs, which opportunity costs spontaneously spring to mind, and what the consequences of considering opportunity costs are. Perceived con- straints cue consumers to consider opportunity costs, and consumers high in pro- pensity to plan consider opportunity costs even when not cued by immediate con- straints. The specific alternatives retrieved and the likelihood of retrieval are functions of category structures in memory. For a given resource, some uses are more typical of the category of possible uses and so are more likely to be con- sidered as opportunity costs. Consumers who consider opportunity costs are less likely to buy focal options than those who do not when opportunity costs are appealing, but no less likely when opportunity costs are unappealing. onsumers have unlimited wants but limited resources, What are the consequences of considering versus neglecting C so satisfying one want means not satisfying another opportunity costs? (the opportunity cost). An opportunity cost is “the evaluation Five studies provide initial answers. Consumers consider placed on the most highly valued of the rejected alternatives opportunity costs when they perceive immediate resource or opportunities” (Buchanan 2008) or “the loss of other constraints and when they use limited-use resources (i.e., alternatives when one alternative is chosen” (Oxford English resources that may only be spent on particular products); Dictionary 2010). Opportunity costs are foundational to the planners chronically consider opportunity costs even when science of economics and, normatively, consumers should they do not face immediate constraints. Categories of re- account for opportunity costs in every decision. Though train- source uses influence which opportunity costs are considered ing can increase consideration (Larrick, Morgan, and Nisbett and the particular ones that are considered matter. Consum- 1990), a stream of behavioral research concludes that indi- ers who consider opportunity costs are more sensitive to viduals often neglect their opportunity costs (Becker, Ronen, their value than those who do not. and Sorter 1974; Frederick et al. 2009; Friedman and Neu- Opportunity cost consideration affects personal and societal mann 1980; Jones et al. 1998; Langholtz et al. 2003; Le- well-being. Individuals who consider opportunity costs are grenzi, Girotto, and Johnson-Laird 1993; Northcraft and more likely to obtain desirable life outcomes than those who Neale 1986). I define opportunity cost consideration as “con- neglect them (Larrick, Nisbett, and Morgan 1993). Personal sidering alternative uses for one’s resources when deciding bankruptcies are linked to credit card debt and spending on whether to spend resources on a focal option.” When do housing and automobiles that leave people with insufficient consumers consider opportunity costs? Who considers op- savings to withstand adverse events (Domowitz and Sartain portunity costs? Which opportunity costs do they consider? 1999; Zhu, forthcoming). Controlling for demographics, propensity to plan for the use of money (possibly reflecting Stephen A. Spiller ([email protected]) is a doctoral candidate differences in opportunity cost consideration) is associated in marketing at the Fuqua School of Business, Duke University. As of July with higher FICO credit scores (Lynch et al. 2010). 1, 2011, he will be assistant professor of marketing at the UCLA Anderson I begin by discussing research on focal and outside op- School of Management, 110 Westwood Plaza, Los Angeles, CA 90095. tions and propose how constraint and categorization may This article is based on the author’s dissertation. The author thanks the increase opportunity cost consideration. Five studies dem- editor, associate editor, three reviewers, and numerous seminar participants onstrate the effects of constraint, planning, and resource-use for constructive feedback. He is indebted to his dissertation committee, accessibility. Jim Bettman, Rick Larrick, Beth Marsh, and especially his cochairs, John Lynch and Dan Ariely, for invaluable guidance and mentorship. Ann McGill served as editor and Brian Ratchford served as associate editor FOCAL AND OUTSIDE OPTIONS for this article. Consumers consider opportunity costs when they pay at- Electronically published April 14, 2011 tention to outside options. Other constructs, such as pain of 595 ᭧ 2011 by JOURNAL OF CONSUMER RESEARCH, Inc. ● Vol. 38 ● December 2011 All rights reserved. 0093-5301/2011/3804-0001$10.00. DOI: 10.1086/660045 596 JOURNAL OF CONSUMER RESEARCH paying (Prelec and Loewenstein 1998; Rick, Cryder, and H1: Resource constraints increase opportunity cost Loewenstein 2008) or the value of the marginal dollar consideration. (Chandukala et al. 2007), may curb consumption too but are not the focus of the present work. This usage of op- In support of this hypothesis, tight mental budgets can portunity cost consideration is consistent with previous re- reduce consumption (Heath and Soll 1996; Krishnamurthy search (e.g., Jones et al. 1998; Legrenzi et al. 1993). Because and Prokopec 2010; Shefrin and Thaler 1988; Stilley, Inman, the way consumers value money may be divorced from its and Wakefield 2010), and merely making smaller, more con- possible uses (Hsee et al. 2003; van Osselaer, Alba, and strained accounts more accessible leads to a lower likelihood Manchanda 2004), and therefore from opportunity costs, it of purchase (Morewedge, Holtzman, and Epley 2007). Rus- is important to understand when they incorporate alternative sell et al. (1999) speculate that consumers with tight budget resource uses, not just the value of money, into their de- constraints are more likely to construct cross-category con- cisions. sideration sets. Consumers tend not to consider alternatives Previous research has largely ignored the drivers of op- that are not explicitly available (Legrenzi et al. 1993), but portunity cost consideration, although some has focused on they are more likely to consider alternatives when they are the consequences of opportunity cost consideration versus more relevant, even if they are not focal (Cherubini et al. neglect. Although framing one option as focal may not 2003; Del Missier et al. 2007). Thought protocols show that change the decision structure, and thus should not affect the people construe resource allocation tasks one decision at a decision, it can have important effects on choice (Jones et time, effectively ignoring opportunity costs, until they have al. 1998). Appealing focal options are more likely to be few resources remaining (Ball et al. 1998). When they ap- chosen than appealing outside options (Posavac et al. 2004, proach constraints, other expenditure opportunities are more 2005), more information is gathered about focal than outside diagnostic, and they construe the current decision as an al- options (Cherubini, Mazzocco, and Rumiati 2003; Del Mis- location across multiple expenditure opportunities. sier, Ferrante, and Constantini 2007; Legrenzi et al. 1993), Constraint is dynamic and varies over time; opportunity and sometimes purchase decisions are made as if outside cost consideration should vary accordingly. Consumers us- options do not exist (Frederick et al. 2009). Research on ing monthly budgets for any given purchase feel less con- hypothesis testing similarly finds that more evidence is gath- straint than consumers using weekly budgets (Morewedge ered about focal hypotheses than alternative hypotheses et al. 2007), expenses are more salient at the end of bud- (Klayman and Ha 1987; Sanbonmatsu et al. 1998), culmi- getary periods than at the beginning (Soster 2010), and food nating in overconfidence regarding a focal hypothesis (Mc- consumption declines over the month for individuals re- Kenzie 1997, 1998). Although focal options take on a priv- ceiving monthly food stamps (Shapiro 2005). Collectively, ileged status, consumers sometimes spontaneously recruit these findings suggest that shorter budgeting periods may outside options into focal decisions (Jones et al. 1998; Po- increase opportunity cost consideration. savac, Sanbonmatsu, and Fazio 1997). The purpose of the present work is to determine what drives such spontaneous The Effects of Category Structures on the recruitment of outside options. I propose two critical drivers Accessibility of Opportunity Costs in Memory are perceived constraint and the accessibility of alternate resource uses. The second proposed driver of opportunity cost consid- eration is the accessibility of alternate resource uses. Infor- mation in memory often is available without being acces- The Effect of Perceived Constraint on sible (Lynch and Srull 1982; Tulving and Pearlstone 1966), Opportunity Cost Consideration so increasing the accessibility of an alternative can increase its consideration (Mitra and Lynch 1995; Nedungadi 1990; The first proposed driver of opportunity cost consideration Posavac et al. 1997; Priester et al. 2004). Accessibility is a is perceived constraint. When consumers recruit inputs to function of both self-generated and externally present re- evaluate a single alternative, they rely on a metacognitive trieval cues (Lynch and Srull 1982). The present work ex- sense of sufficiency to terminate
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