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Three heuristics of search for a low price when initial information about the market is obsolete

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Abstract

In traditional economics, buyer behaviour is usually modelled under the assumption of full information either on prices and their locations within the market or at least on the probability distribution of prices in the market. Neither of these assumptions seems appropriate in some cases such as when the buyer enters the specific market only very infrequently (e.g., markets for durables). This paper studies experimentally the search rules that buyers might use in this case of extreme lack of information on prices. The paper identifies three general search heuristics, derives three specific rules from the heuristics and, using data from a small-scale experiment, estimates parameters of the rules.

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Bibliographic Info

Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2006/17.

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Length: 27 pages
Date of creation: Jul 2006
Date of revision: Jul 2006
Handle: RePEc:fau:wpaper:wp2006_17

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Keywords: search; heuristics; aspiration level; experiment;

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