Ignorance may be bliss for consumers, economist says

Feb 12, 2013

Would having more information about the value of a product—say, a new camera—help potential buyers? Not necessarily, according to a Cornell economist.

Good sources of information can certainly help the individual consumer make good decisions about whether to buy a product, and whether to buy at a particular price. But overall more information is likely to result in higher demand—and a higher price, says Robert Masson, professor of economics.

"If a magazine like Consumer Reports comes out with new information about a product, and now people really value the product, well, the price is going to go up. So you may have the effect that consumers are actually worse off," said Masson, an expert in theoretical and empirical industrial organization.

Masson's paper, "Ignorance Is Bliss? Uncertainty About Product Valuation May Benefit Consumers" appears in the most recent issue of Applied .

The economists assume that consumers are sophisticated in the sense that, on average, they are able to accurately estimate an item's value. Some underestimate, others overestimate, but overall the group appraises the product's value correctly.

"So virtually everybody is making the right decision beforehand. You give them information, and this will tend to raise the price, so all these people who were making more or less the right decisions before are going to be paying a little bit more," Masson said.

call the concept a "fallacy of composition"—that is, what is true for a part of the whole is not necessarily true for the whole. In this case, information that benefits one consumer may in fact be adverse for buyers as a whole.

The study suggests that credible sources of information do provide a helpful service, especially when they address a product about which consumers are poorly informed. "To the extent that Consumer Reports, for example, really picks things where there's likely to be uncertainty beforehand, consumers should look at that sort of stuff," Masson said. But if the consumers are already fairly well informed, then the information is less valuable, he added.

"We cannot help but to notice the irony of it: in the case of , pay for truthful and unbiased information that can in some cases hurt them," Masson said.

Explore further: Power can corrupt even the honest

More information: Applied Economics Letters (20:9).

add to favorites email to friend print save as pdf

Related Stories

Early product launches: How will consumers respond?

Apr 19, 2011

A new study in the Journal of Consumer Research explains why consumers often indicate they are willing to pay more for a product that is not yet available—but are reluctant to pay that price when the product is ultima ...

Is it best to withhold favorable information about products?

Oct 21, 2011

Consumers are more likely to choose products when marketers withhold some favorable information until late in the choice process, according to the Journal of Consumer Research. But marketers need to walk a fine line to dis ...

Recommended for you

Power can corrupt even the honest

2 hours ago

When appointing a new leader, selectors base their choice on several factors and typically look for leaders with desirable characteristics such as honesty and trustworthiness. However once leaders are in power, can we trust ...

Learning at 10 degrees north

3 hours ago

Secluded beaches, calypso music and the entertaining carnival are often what come to mind when thinking of the islands of Trinidad and Tobago. But Dal Earth Sciences students might first consider Trinidad's ...

How to find the knowns and unknowns in any research

4 hours ago

Have you ever felt overloaded by information? Ever wondered how to make sense of claims and counter-claims about a topic? With so much information out there on many different issues, how is a person new to ...

Minorities energize US consumer market, according to report

5 hours ago

The buying power of minority groups in the U.S. has reached new heights and continues to outpace cumulative inflation, according to the latest Multicultural Economy Report from the Selig Center for Economic Growth at the ...

User comments : 8

Adjust slider to filter visible comments by rank

Display comments: newest first

Squirrel
5 / 5 (4) Feb 12, 2013
Nonsense. Higher demand will only result in higher prices if supply is fixed--which it is not for consumer goods. Moreover, higher demand will led to higher levels of production that will reduce the individual costs of each item and so reduce their costs. For example, Consumer Reports by identifying the qood value of foreign made cars will increase their supply and so reduce the costs of their importation, distribution and serving and so their marketed price.
CapitalismPrevails
3.7 / 5 (3) Feb 12, 2013
I think PROFESSOR Mason is thinking too hard about this. Sure, maybe the price will go up in the short term. But in the longer term, the price should go down as the higher price communicates more demand for more supply and drives the streamlining of the production to distribution process.
dav_daddy
3 / 5 (2) Feb 12, 2013
That's also not to mention the potential resale value when the next years model comes out, for those who upgrade on a 12-18 month cycle.

Plus the increased likelihood that repair/servicing will be available longer term for those who buy for the longer term.
VendicarE
2 / 5 (4) Feb 12, 2013
Isn't it odd how next years model always manages to be inferior, and less serviceable to this years model?

It is the failure of American style Capitalism.

Of course the blissfully ignorant defenders of American style Capitalism will deny the reality of the situation.
julianpenrod
3 / 5 (2) Feb 12, 2013
A convenient "excuse" for not telling consumers about the dangerous toxins in their food or the abysmally poor quality of what they're buying. And all the while pretending "it's for their own good".
telling, though, in that greater demand can make price go down, among other things, by allowing the producer to purchase in greater bulk. During the Eighties, coffee crops in many nations were bad, but one South American country had enough to cover. It was already harvested, they wouldn't have to do anything more, but they charged more because of "supply and demand"!
Consider, too, this is just a machination for poor products to build undeserved confidence simply by charging more.
"Economics" is a lie and the corporations are all crooks.
VendicarE
3 / 5 (4) Feb 12, 2013
It is now self evident from the economic results, that the Austrialn economics that has dominated the economic thinking since Reagan was nothing but Fraud, promoted by Libertarian Frauds.

""Economics" is a lie and the corporations are all crooks." - Julian

Never forget that the goal of every corporation is to sell the worst possible product at the highest possible price.
rwinners
5 / 5 (1) Feb 13, 2013
Paraphrasing Sam: All consumers want all the info available all of the time... but not all consumers use all of the info all of the time..... still some consumers do use all of the information some of the time.....
Caliban
1 / 5 (1) Feb 13, 2013
Or, one can decide to abdicate the responsibility to inform oneself, and just shop at walmart.

I suppose this would make Pr. Masson giddy with pleasure.