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Decision costs and price sensitivity: Field experimental evidence from India

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  • Spears, Dean
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    Abstract

    Poor people often exhibit puzzlingly high sensitivity to low prices of important consumer health goods. This paper proposes decision costs as one explanation: whether a person buys at a price depends on whether she carefully considers the offer, which itself depends on price. A simple model predicts that deliberation costs (1) increase sensitivity to low prices; (2) can prevent cost-sharing from targeting products to buyers with high value; and (3) can have larger effects on poorer people. The principal contribution of this paper is a field experiment that sold hand-washing soap in rural India. Participants were randomly assigned to be offered soap for either a low or very low price, which was experimentally crossed with assignment to a control group or to a treatment that required deliberation. Results matched predictions of the model: the treatment decreased price sensitivity relative to the control group, and increased targeting of product take-up by need.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 97 (2014)
    Issue (Month): C ()
    Pages: 169-184

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    Handle: RePEc:eee:jeborg:v:97:y:2014:i:c:p:169-184

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    Web page: http://www.elsevier.com/locate/jebo

    Related research

    Keywords: Deliberation costs; Cognitive limits; Social marketing; Cost sharing; Handwashing with soap; Pricing; Behavioral economics; Development economics; Field experiment;

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