Categorization Affects Consumer Predictions

By BizEd Editorial Staff

July 1, 2014

ALTHOUGH HUMANS ARE wired to predict the future—whether it’s what the weather will be, who will win a sporting event or election, or how a stock will perform—they rarely get better at it over time.

Even so, consumers often will make major decisions based on their own predictions, according to Aaron Brough, assistant professor of management at Utah State University’s Huntsman School of Business in Logan, and Matthew Isaac, assistant professor of marketing at Seattle University’s Albers School of Business and Economics in Washington.

Brough and Isaac found that consumers often make bad predictions because they are distracted by how possibilities are categorized, and the size of those categories. The pair conducted a series of experiments. In each, participants consistently made worse predictions when a possibility appeared in a large grouping. For instance:

Participants whose lottery tickets were the same color as the tickets of many other gamblers believed they were more likely to win than those whose tickets matched only a few others’. When betting on their likelihood of winning, the first group wagered 24 percent more, on average, than the second.

They were more likely to predict that a team would win the NCAA basketball tournament if that team’s mascot was similar to the mascots of other teams.

They were more likely to act to prevent an IT security threat when they perceived that their actions were among many preventative behaviors, compared to those who viewed their actions as more isolated.

If consumers are aware of this tendency, they can avoid “category size bias” and improve their forecasting accuracy. Moreover, such awareness also could help policymakers make their messaging to consumers more effective, says Brough. For instance, a message that aims%2