Applied behavioral economics in the digital context – Examining the idea of “free”

  • Wilson Wang

    Student thesis: Doctoral Thesis

    Abstract

    The birth of the digital revolution brought about by the ubiquitous penetration of smartphone usage across the globe has compelled businesses to rethink their business strategies. For resource-strapped digital entrepreneurs and practitioners, having a good understanding of the consumer decision-making process will help to shape relevant strategies for this new digital context. This dissertation provides a literature review on the evolution of consumer decision-making processes from the classical expected utility model to behavioral economics theories like prospect theory and the more contemporary nudge and zero-price theories. A two-stage conceptual framework involving an awareness stage and a subsequent conversion stage is also introduced for examining consumer behavior in the digital context. The main quantitative research focuses on examining the zero-price effect (ZPE) and the endowment effect within the digital context, with the methodology of situating participants in imagined scenarios, and then measuring their choice and corresponding Net Promoter Score (NPS), to identify how specific factors like application category and the type of free-related strategy moderate the level of affect. Results show that choice proportions and NPS vary according to category and strategy type (freemium or free-trial). One key useful managerial implication for digital practitioners who can potentially choose freemium strategy for leisure gaming or more trivial kind of applications and adopt the free-trial strategy for productivity type applications or those more “embedded” into the user’s daily workflow. Such understanding can also help practitioners to design more effective and non-intrusive digital “nudges” to encourage adoption, conversion and deeper engagement with the applications, which can be particularly useful in the fields of e-commerce, education, healthcare and finance. A formal proposal to include the ZPE in the cognitive bias codex and a purpose-driven framework to link the codex to virality and conversion growth hacking strategies for digital practitioners are also included in this dissertation. This dissertation contributes both quantitatively to the study of applied behavioral economics as well as qualitatively to the nascent body of growth hacking literature particularly in the digital context. Future research using similar methodology can also be conducted to explore how independent variables like category or strategies moderate other behavioral effects such as framing or the IKEA effect. Furthermore, new studies on how the ZPE and endowment effect can complement other kind of interventions to constitute even more effective digital nudges can also be explored for influencing consumer or user behavior in the digital context.
    Date of Award2022
    Original languageEnglish
    SupervisorCraig Applegate (Supervisor) & Abu Saleh (Supervisor)

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