Knowing Where They Stand: The Role of Inferred Distributions of Others in Misestimates of Relative Standing

Abstract

People often estimate how they compare to other consumers when they make purchase decisions. Unfortunately, they tend to err in this task, and this can lead to negative consequences in their choices. Previous literature has largely argued that these errors in estimates of relative standing are due to underweighting or ignoring the reference group. Using a novel measure of people’s perception of the reference group, we show that consumers do attend to that information but err in their estimates of relative standing because they tend to overestimate the dispersion of others’ performances and attributes. Three studies support this argument and provide insights that enable marketers to alter consumers’ relative assessment process in formerly discounted ways. We demonstrate straightforward tools that can change consumers’ impressions of others and thus change relative assessments and purchase decisions.