Consumer prediction: Forecasted utility, psychological distance, and their intersection

Abstract

Consumer prediction encompasses the cognitive, affective, and motivational psychological processes by which consumers anticipate (and subsequently produce) the future. Prediction is a pervasive factor in consumer decision making, from everyday decisions such as which lunch one should purchase to major decisions about how much one will need to save for retirement. More generally, predictions are the method by which consumers determine which choice options will bring them the greatest satisfaction in the present and by which they anticipate their needs and wants in the near and distant future. In this chapter, we examine the processes by which consumers infer whether and what will happen in the future, the accuracy of their predictions, their antecedents, and consequents. We (i) review the two dimensions of prediction that have been most studied, utility and psychological distance, and how they combine to determine the perceived value of prospects (choice options). We (ii) discuss innovative research on these topics over the last decade, and (iii) end with important open questions and promising future directions.I. Dimensions of Prediction Guided by the evaluation of prospective (future) events in terms of their expected value (Kahneman & Tversky, 1979; Von Neumann & Morgenstern, 1947), the two dimensions of prediction typically studied by consumer psychologists are (a) the utility of future events and (b) their probability of occurrence. In this chapter, we discuss these two dimensions of prediction in terms of their recently refined and expanded definitions. Specifically, we review the concept of utility in terms of a refined definition that distinguishes between indirect and direct measures of utility. We review the concept of probability as an instance of a broader dimension of psychological distance, which also includes time, physical space, and more abstract forms of distance such as social connection.Utility Utility is a measure of the value of a stimulus that typically connotes the total pleasure or pain associated with its anticipation, experience, and recollection. Consumer prediction research typically examines two kinds of utility associated with a future event: its decision utility and its predicted utilit (Kahneman, Wakker, & Sarin, 1997; Morewedge, in press; Shiv & Huber, 2000). Decision utility refers to relative preference that people exhibit for different stimuli, measured through indirect methods such as observing which stimulus they choose when given a choice of stimuli and their willingness to pay for a stimulus