Eect of perceived cost on judgments regarding the ecacy of investment

Three experiments examined the e€ect of costs associated with investments on the judgments of the causal e€ectiveness of those investments, and on the type of information utilised when making those judgements. Using operant conditioning technology, in an experimental analogue of making economic investments, it was found that greater costs associated with an investment reduced the judgement about the e€ectiveness of the response (Experiment 1). Greater investment costs tended to bias the subject toward using information integrated over a longer period of time; whereas low costs tended to produce judgements made on the basis of the conditions prevailing immediately prior to the return being acquired (Experiments 1±3). The e€ect of cost was modulated by the subjects' own ®nancial background. The same absolute cost being treated as ``greater'' by those from less wealthy backgrounds compared to those from more a‚uent backgrounds (Experiments 2 and 3). These results suggest that as well as the nature of the schedule relating investment to return, the perceived cost of the investment determines the manner in which it is judged with respect to its ecacy. Ó 1999 Elsevier Science B.V. All rights reserved. PsycINFO classi®cation: 2400; 2420 JEL classi®cation: E22; E27; D81 Journal of Economic Psychology 20 (1999) 657±676 www.elsevier.com/locate/joep * Tel.: +44-171-504-5413; fax: +44-171-436-4276. E-mail address: [email protected] (P. Reed) 0167-4870/99/$ see front matter Ó 1999 Elsevier Science B.V. All rights reserved. PII: S 0 1 6 7 4 8 7 0 ( 9 9 ) 0 0 0 2 9 X