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Adaptive Learning Models of Consumer Behaviour (first version)

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Abstract

This paper applies recent advances in the theory of learning to the analysis of consumer behaviour. The working assumption is that while sellers are rational in the traditional sense, consumers are boundedly rational. The differences in outcomes for search goods and experience goods are investigated. In the latter case, if consumers fail to take into account that information is only partial, they can become locked into the habit of purchasing inferior goods. Surprisingly, however, prices are lower than when information is complete. Firms have an incentive to offer lower prices to prevent consumers becoming locked into their rival's product.

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  • Ed Hopkins, 2002. "Adaptive Learning Models of Consumer Behaviour (first version)," Edinburgh School of Economics Discussion Paper Series 80, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:esedps:80
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    References listed on IDEAS

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