Experimental Design
The experiment is composed of two parts: (i) a quality elicitation step (Task 1) and (ii) a main choice task (Task 2).
In the quality elicitation task, we elicit subjective quality values of 24 consumer products using a multiple price list method. Consumer products used in the experiment are snacks that are familiar to student subjects. In each round, a picture, a name, and a weight of a product appear on a screen. Then a subject is asked whether they prefer the product (Option A) to an amount of money (Option B). This binary question is asked multiple times by varying the amount of money in Option B ranging from $0.01 to $8 in increments of $0.01. Instead of asking a subject to make 800 choices in each round, we ask them at which dollar value they would like to switch from Option A to Option B. Once they report the switch point, then Option A is chosen for the first question to the question right before the switch point, and Option B is chosen for all questions after the switch point. We say that a dollar value at the switch point is a subjective quality value of a product. The order of rounds is randomized at the subject level.
Before the main choice task, we select four sets of two-paired products in which (i) the elicited quality values are greater than or equal to $0.10, (ii) the elicited quality values are smaller than or equal to $6, and (iii) the difference in elicited quality values in each product set is greater than or equal to $0.5.
In the main choice task, a subject chooses the most preferred alternative from a choice set consisting of three alternatives. Note that the first and the second alternatives are bundles of a product and money while the third alternative is simply a money option, i.e., (Product 1, Money 1), (Product 2, Money 2), (Money 3). Product 1 and Product 2 are from a selected product set before the main choice task as described above. Money 3 is an endowment, and in this experiment, it can be either $8 or $10. In this case, the third alternative can be interpreted as an outside option, which is simply taking an endowment. Money 1 and Money 2 are calculated at the subject level based on the elicited quality values and the endowment so that we can distinguish and test the pairwise normalization model and the range normalization model. Specifically, once a product set and an endowment are fixed, we generate six choice sets in which the pairwise normalization model and the range normalization model provide different predictions. Remember that we have four product pair sets and two endowments. Hence, each subject makes 48 choices.