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Adaptive Learning Models of Consumer Behaviour

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  • Ed Hopkins

Abstract

In a model of dynamic duopoly, optimal price policies are characterized assuming consumers learn adaptively about the relative quality of the two products. A contrast is made between belief-based and reinforcement learning. Under reinforcement learning, consumers can become locked into the habit of purchasing inferior goods. Such lock-in permits the existence of multiple history-dependent asymmetric steady states in which one firm dominates. In contrast, belief-based learning rules must lead asymptotically to correct beliefs about the relative quality of the two brands and so in this case there is a unique steady state.

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000658.

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Date of creation: 03 Mar 2006
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Handle: RePEc:cla:levrem:122247000000000658

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Citations

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Cited by:
  1. Oyarzun, Carlos & Sarin, Rajiv, 2013. "Learning and risk aversion," Journal of Economic Theory, Elsevier, vol. 148(1), pages 196-225.
  2. Mengel, Friederike, 2012. "Learning across games," Games and Economic Behavior, Elsevier, vol. 74(2), pages 601-619.
  3. Alos-Ferrer, Carlos & Kirchsteiger, Georg & Walzl, Markus, 2006. "On the Evolution of Market Institutions: The Platform Design Paradox," CEPR Discussion Papers 5538, C.E.P.R. Discussion Papers.
  4. Liangjie Zhao & Wenqi Duan, 2014. "Simulating the Evolution of Market Shares: The Effects of Customer Learning and Local Network Externalities," Computational Economics, Society for Computational Economics, vol. 43(1), pages 53-70, January.
  5. Carlos Oyarzun & Rajiv Sarin, 2012. "Learning and Risk Aversion," Levine's Working Paper Archive 786969000000000572, David K. Levine.
  6. Grimm, Veronika & Mengel, Friederike, 2012. "An experiment on learning in a multiple games environment," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2220-2259.

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