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Demand effects of consumers’ stated and revealed preferences

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  • Engström, Per
  • Forsell, Eskil

Abstract

Knowledge of how consumers react to different signals is fundamental to understanding how markets work. The modern electronic marketplace has revolutionized the possibilities for consumers to gather detailed information about products and services before purchase. Specifically, a consumer can easily – through a host of online forums and evaluation sites – estimate a product’s quality based on either (i) what other users say about the product (stated preferences) or (ii) how many other users that have bought the product (revealed preferences). In this paper, we compare the causal effects on demand from these two signals based on data from the biggest marketplace for Android apps, Google play. This data consists of daily information, for 42 consecutive days, of more than 500,000 apps from the US version of Google play. Our main result is that consumers are much more responsive to other consumers’ revealed preferences, compared to others’ stated preferences. A 10 percentile increase in displayed average rating only increases downloads by about 3%, while a 10 percentile increase in displayed number of downloads increases downloads by about 25%.

Suggested Citation

  • Engström, Per & Forsell, Eskil, 2018. "Demand effects of consumers’ stated and revealed preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 43-61.
  • Handle: RePEc:eee:jeborg:v:150:y:2018:i:c:p:43-61
    DOI: 10.1016/j.jebo.2018.04.009
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    More about this item

    Keywords

    Peer effects; Observational learning; Network effects; Stated preferences; Revealed preferences; eWOM; Google play; Android apps; Regression discontinuity design; Instrumental variable analysis;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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