- Robert Reuss
The Value-Action Gap in Consumer Decision-Making
by Susan Alexander, PhD
“Do as I say not as I do.” John Selden in Table-Talk, c. 1654:
An environmentalist buys an SUV. A person on a diet can’t resist a piece of chocolate cake. Someone saving for a mortgage puts an impulse purchase on a credit card. A conservative investor buys the fund with the highest returns.
All of these situations are familiar and are usually understood as examples of basic human nature. However, if one is a climate change activist, a doctor trying to encourage better health, or an investment advisor, the inconsistency between someone’s attitudes and his behavior is a matter of concern. Scholars call this inconsistency the value-action gap.
The concept of a value-action gap, also called the attitude-behavior gap, the intention- behavior gap, and the belief-behavior gap, developed from the realization that, while there are growing concerns about climate change, people’s actions are not changing to reflect this issue. Consequently, research on the value-action gap has mainly been carried out by environmentalists, along with some social psychologists. Their findings are broadly applicable to all consumer behaviour.
Studies suggest that a multiplicity of factors affect behaviour and consumer choices, with the result that identifying precisely why this gap exists is complex. For instance, factors influencing a consumer purchase include price, quality, convenience, and brand as well as values.
Traditionally, the theory of reasoned action held that behaviour is the result of a person’s attitudes associated with that behaviour plus social norms. A person’s voluntary behaviour should thus be predicted by his attitudes and values (1).
However, in the case of the environment, while as many as 54% of Americans agreed that environmental protection was a key priority (2), there was no corresponding increase in such actions as recycling or limiting energy usage(3). Other studies that examined the choice of cleaner vehicles, legally-logged wood, fair trade products, and organic dairy products similarly found environmentall- friendly attitudes did not influence consumer choice.
Thus attitudes are not always an accurate indicator of behaviour and an individual’s decision-making process is difficult to predict. Positive attitudes do not necessarily result in positive behavior.
What does affect behaviour?
The relationship between attitudes and behaviour is the result of mediation between sets of attitudes as well as external and contextual limits, including economics and politics (4).
Consumer decision-making involves a comparison of the costs and benefits of alternatives within a specific budget, rather than certain values (5). The gap can be attributed to brand strength, culture, finance, lack of information, lifestyle, personality, or trade-offs between different ethical factors. Time and convenience can also be major determinants of consumer behavior, as can price and quality (6).
Other factors identified as affecting behaviour are budget and habit. In addition, people act impulsively7 and let selfishness trump altruism (8).
The diagram below identifies factors that result in a value-action gap.
The Information Deficit Theory
One explanation for the disjunct between values and consumer choice is a lack of information. Consequently, providing more information should bridge this gap (9). Information produces knowledge, which then forms attitudes that lead to consistent behaviour (10). Filling the value-action gap with information results in behavioural change. The theory is illustrated by the graphic below.
Unfortunately for supporters of the information-deficit theory, it remains unproven that mere information promotes changes in behaviour, as the same information can be understood in different ways—sometimes even in the opposite way expected (11). Thus other factors are assumed to exist besides a lack of information that result in a value-action gap. The concept of “bounded rationality” posits that individual decisions are limited by psychological and environmental constraints and that day-to-day responsibilities constrain actions (12).
The graph below shows two learning curves and illustrates that, even though a person may acquire new information, it takes time for it to “sink in.” In the meantime, value action gaps are common during the period represented by the trough in the graph.
The Value-Action Gap and Behavioral Economics
Behavioral economics studies the impact of psychological, cognitive, emotional, cultural and social factors on an individual’s economic decisions. Like the theory of reasoned action cited above, economic theory traditionally assumed that economic decisions were logical and resulted in efficient markets. However, it has become obvious that markets are not completely rational. This is due to:
Heuristics. People make nearly all of their decisions using “rules of thumb.”(13)
Framing. People use mental filters such as stereotypes and anecdotes tounderstand and respond to events.
Market inefficiencies resulting from non-rational decision making.
Daniel Kahneman (2002), Robert J. Shiller (2013), and Richard Thaler (2017) all received Nobel Prizes in Economic Sciences for their work in this field which established that people’s non-rational decisions are uncertain and defy economic theory. They exhibit value- action gaps.
Behavioral finance is a subset of behavioural economics It explains why market participants make irrational and erroneous decisions that create market inefficiencies. Decisions reflect under- or over-reactions to information which, in extreme cases, lead to market bubbles or crashes. These poor decisions have been associated with overconfidence, over-optimism, herd behaviour and lack of attention to information. Other examples of investor value-action gap behaviour include unwillingness to take profits or cut losses.
AI in Behavioral Finance
Increasingly, trading decisions are made either by human beings with the assistance of AI or wholly by AI. A ground-breaking study concluded that AI reduced the impact of bounded rational decision making. AI also decreased market information asymmetry, improved decision making and increased market rationality (14). The use of AI for online trading and decision making has impacted economic theories, including those relating to counterfactual thinking, game theory, portfolio optimization, and rational expectations.
BestFit: Decreasing the Consumer Value-Action Gap
Just as AI has assisted in closing gaps in financial market trading, it can also assist companies in identifying consumer bias and narrowing the value-action gap. Because such gaps are largely unacknowledged or unconscious, simple questions may not uncover the consumer’s actual preferences and result in ineffective recommendations for products and services. In contrast, the BestFit platform can determine a more accurate customer profile and result in a better, more successful experience for both consumer and seller.
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(13) A rule of thumb is a principle not intended to be strictly accurate or reliable for every situation but is easily learned and applied and based on practical experience rather than theory. (14) Marwala, T. & Hurwitz, E. (2017). Artificial Intelligence and Economic Theory: Skynet in the Market. London: Springer.