Loving What You Get: The Price Effects of Consumer Self-Persuasion

The paper considers how consumers’ cognitive efforts at preference adjustment at the time of decision affect prices in competitive markets with differentiated products. Greater ease of self-persuasion implies higher prices when self-persuasion reinforces first impressions and lower prices when the best opportunities to persuade oneself exist for consumers with weak initial impressions. Exogenous interventions to ease decision-complementing cognition—e.g., advertising—predictably increase or reduce prices, depending upon how they are targeted. While facilitation of consumers’ adjustment always improves welfare in a covered market, firms’ appropriation of surplus may make consumers worse off even as they learn better to love what they get.