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Research Note—Should Consumers Use the Halo to Form Product Evaluations?

Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213
Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213
Altus Pharmaceuticals, Cambridge, Massachusetts 02139
pbhb{at}andrew.cmu.edu
kalra{at}andrew.cmu.edu
wei_zhang_phd{at}yahoo.com

In purchase situations where attribute information is either missing or difficult to judge, a well-known heuristic that consumers use to form evaluations is the halo effect. The psychology literature has widely considered the halo a reflection of consumers' inability to discriminate between different attributes and have therefore labeled it the "halo error" or the "logical error." The objective of this paper is to offer a rationale for the halo effect. We use a decision-theory framework to show that the halo is consistent with the goal of minimizing estimation risk. Contrary to conventional wisdom, we demonstrate that a decision using the halo has lower estimation risk compared to not using the halo heuristic. Therefore, using the halo results in utility maximization and is indicative of rational behavior.

Key Words: halo effect; decision-theoretic consumer choice; James-Stein estimator; utility preference
History: Received: December 9, 2004;