Irish people who think they can spot a bargain when they see one are most probably deluding themselves, according to a research into consumer behaviour published today.

The study from the new behavioural economics laboratory in the Economic and Social Research Institute (ESRI) proves that when a single additional factor, alongside price, is used to describe two comparable products, consumers struggle to identify which is the best value for money.

And if four factors are used in a product’s description, as well as the price, people have virtually no chance of being able to accurately work out which one is the best value.

Biases

The first published data from the new research unit, headed by Dr

Pete Lunn

, also reveals systematic biases in consumers’ choices, with most people assuming high-end products are better value than cheaper ones, even when the available evidence makes it clear the dearer options are overpriced.

The programme has been jointly funded by the Central Bank, the energy and communications regulators and the Competition and Consumer Protection Commission. Its mission is to find out when products become too complex for consumers to choose accurately between them .

The definitive answer will not make for happy reading for Irish consumers or regulators, as it appears that when presented with even a couple of different options, buyers find it difficult to identify good value.

Even well-informed and numerically literate people performed badly in the tests. Teams from the ESRI were allowed to take part in the experiment alongside the general public and did just as well – or as badly – as everyone else.

Researchers carried out price comparison experiments on 500 subjects who were asked to assess the relative value of products that had been assigned set characteristics.

Some of the products the subjects were asked to compare – such as Mayan pyramids and eggs of gold, silver and bronze – were completely unfamiliar to them. Others, such as Dublin houses and broadband packages, were instantly recognisable.

The study showed that familiarity did not make any real difference and people were just as bad at identifying a bargain when looking at something they knew well as when they were looking at something they had never seen before. Virtually everything hinged on the amount of different factors used to describe the product.

Researchers surprised

Dr Lunn said researchers had been surprised by the findings and by how quickly consumers became confused. They had anticipated that people would struggle when asked whether complex products were good value for money but had not realised how few different attributes a product had before people started making mistakes.

“It means that complex products are more common than we thought and complexity is not just in the areas of health insurance or telecommunications or interest rates,” he said. “And it turns out you can value a Mayan pyramid that you have never seen before just as well as a Dublin house you have been arguing about for 20 years. What matters is not familiarity or otherwise but the number of attributes used in describing the product.”

Dr Lunn said the study had implications for switching and competition, adding that if people could not make accurate decisions about which company offered the best value for money when presented with a few key facts, then the benefits of competition could be lost.