Gewei Ye

The Locus Effect on Inertia Equity

This study links the self-other asymmetry in judgment to the loss-gain asymmetry in choice. As a manifestation of loss aversion, a customer tends to stay with status quo (e.g., a home brand) rather than switch to a new brand because losing the status quo looms larger than gaining the new brand. Inertia equity assesses the difference between mental losses and gains. It is the difference between the price that will induce a customer to switch to a competitor brand and the price of the brand the customer has typically been using in the past (i.e., the anchoring price). We find that inertia equity is smaller when consumers evaluate peer customers (locus of others), than evaluating themselves (locus of self) to switch brands, which is coded as the locus effect on inertia equity. The asymmetric value function postulated by prospect theory is employed to describe inertia equity. The locus effect is then derived after linking the self-other asymmetry to the value function. The difference between valuing losses and gains in brand switching is larger for self-related than others’ items because consumers are more sensitive to self-related losses than others’ equivalent losses. It is also found that the locus effect is applicable to brands with various anchoring prices.