Three Essays on Cost-benefit Trade-offs in Individual and Organizational Decision-Making

Abstract

Why do people sometimes fail to pursue offers, even when those offers seem to offer only upside? From consumers turning down (free) products to nonprofit organizations turning down (free) donations, this dissertation documents how consumers and organizations make cost-benefit trade-offs, and how these trade-offs influence their decision-making.

Essay one documents opportunity neglect—a tendency for many consumers to reject low- probability opportunities even when these come with little or no objective costs (e.g., time, money). Across studies, participants rejected low-probability opportunities, in domains ranging from job applications to monetary prospects to consumer goods. In essence, consumers trade off the potential (small) gain of success against a (likely) feeling of disappointment.

Essay two examines healthcare consumers’ trade-offs between affordability and quality. It finds that relative to high-coverage consumers (for whom insurance covers relatively more), low-coverage consumers choose low-priced providers more frequently, and self-servingly rate these providers as higher in quality due to motivated reasoning. As such, low-coverage consumers face a larger trade-off than low-coverage consumers.

Finally, essay three documents the potentially damaging evaluations nonprofit institutions face when receiving donations from tainted donors. Although society is arguably better off when money moves from tainted donors to nonprofits, consumers sometimes penalize such nonprofits, viewing them as less moral and less trustworthy, and donating less to them. Tainted donors, therefore, represent a difficult tradeoff for nonprofit organizations: accept or reject the money?