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Adaptive learning models of consumer behavior

  • Hopkins, Ed

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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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 64 (2007)
Issue (Month): 3-4 ()
Pages: 348-368

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Handle: RePEc:eee:jeborg:v:64:y:2007:i:3-4:p:348-368
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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