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Decision costs and price sensitivity: Field experimental evidence from India

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  • Spears, Dean

Abstract

Poor people often exhibit puzzlingly high sensitivity to low prices of important consumer health goods. This paper proposes decision costs as one explanation: whether a person buys at a price depends on whether she carefully considers the offer, which itself depends on price. A simple model predicts that deliberation costs (1) increase sensitivity to low prices; (2) can prevent cost-sharing from targeting products to buyers with high value; and (3) can have larger effects on poorer people. The principal contribution of this paper is a field experiment that sold hand-washing soap in rural India. Participants were randomly assigned to be offered soap for either a low or very low price, which was experimentally crossed with assignment to a control group or to a treatment that required deliberation. Results matched predictions of the model: the treatment decreased price sensitivity relative to the control group, and increased targeting of product take-up by need.

Suggested Citation

  • Spears, Dean, 2014. "Decision costs and price sensitivity: Field experimental evidence from India," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 169-184.
  • Handle: RePEc:eee:jeborg:v:97:y:2014:i:c:p:169-184
    DOI: 10.1016/j.jebo.2013.06.012
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    1. Spears Dean, 2011. "Economic Decision-Making in Poverty Depletes Behavioral Control," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-44, December.

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