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Testing Alternative Learning Theories: Evidence From Subscription Contracts

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  • Itai Ater
  • Vardit Landsman

Abstract

Analyzing panel data of 32,650 checking‐account holders facing a menu of three‐part tariff contracts, we document several findings that indicate that subscribers use simple heuristics to learn about the desirability of the contracts they have chosen. Our main findings are: subscribers change contracts in a direction that diminishes the probability of re–experiencing the trigger for switching; subscribers exhibit recency effects in switching; and after switching the majority of switchers systematically pay higher fees than they did before. We argue that directional learning theory best explains why consumers behave in a manner that yields suboptimal economic outcomes.

Suggested Citation

  • Itai Ater & Vardit Landsman, 2018. "Testing Alternative Learning Theories: Evidence From Subscription Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 66(4), pages 763-815, December.
    • Handle: RePEc:bla:jindec:v:66:y:2018:i:4:p:763-815
    DOI: 10.1111/joie.12185
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    Cited by:

    1. Genakos, Christos & Roumanias, Costas & Valletti, Tommaso, 2023. "Is having an expert “friend” enough? An analysis of consumer switching behavior in mobile telephony," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 359-372.
    2. Landsman, Vardit & Nitzan, Irit, 2020. "Cross-decision social effects in product adoption and defection decisions," International Journal of Research in Marketing, Elsevier, vol. 37(2), pages 213-235.
    3. Guiso, Luigi & Pozzi, Andrea & Tsoy, Anton & Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2022. "The cost of steering in financial markets: Evidence from the mortgage market," Journal of Financial Economics, Elsevier, vol. 143(3), pages 1209-1226.

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