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Adaptive Learning Models of Consumer Behaviour (first version)

This paper applies recent advances in the theory of learning to the analysis of consumer behaviour. The working assumption is that while sellers are rational in the traditional sense, consumers are boundedly rational. The differences in outcomes for search goods and experience goods are investigated. In the latter case, if consumers fail to take into account that information is only partial, they can become locked into the habit of purchasing inferior goods. Surprisingly, however, prices are lower than when information is complete. Firms have an incentive to offer lower prices to prevent consumers becoming locked into their rival's product.

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 80.

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Length: 14
Date of creation: Feb 2002
Date of revision:
Handle: RePEc:edn:esedps:80
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  1. Ed Hopkins, 2001. "Two Competing Models of How People Learn in Games," NajEcon Working Paper Reviews 625018000000000226,
  2. Drew Fudenberg & David K. Levine, 1996. "The Theory of Learning in Games," Levine's Working Paper Archive 624, David K. Levine.
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  7. Ed Hopkins & Robert M Seymour, 2000. "The Stability of Price Dispersion under Seller and Consumer Learning," ESE Discussion Papers 52, Edinburgh School of Economics, University of Edinburgh.
  8. Pradeep K. Chintagunta & Vithala R. Rao, 1996. "Pricing Strategies in a Dynamic Duopoly: A Differential Game Model," Management Science, INFORMS, vol. 42(11), pages 1501-1514, November.
  9. C. Monica Capra & Jacob K. Goeree & Rosario Gomez & Charles A. Holt, 2000. "Learning and Noisy Equilibrium Behavior in an Experimental Study of Imperfect Price Competition," Virginia Economics Online Papers 336, University of Virginia, Department of Economics.
  10. Sarin, Rajiv & Vahid, Farshid, 1999. "Payoff Assessments without Probabilities: A Simple Dynamic Model of Choice," Games and Economic Behavior, Elsevier, vol. 28(2), pages 294-309, August.
  11. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
  12. Erdem, Tulin & Broniarczyk, Susan & Charavarti, Dipankar & Kapferer, Jean-Noel & Keane, Michael & Roberts, John & Steenkamp, Jan-Benedict & Swait, Joffre & Zettelmeyer, Florian, 1999. "Brand Equity, Consumer Learning and Choice," MPRA Paper 53022, University Library of Munich, Germany.
  13. Arthur Fishman & Rafael Rob, . ""Experimentation and Competition''," CARESS Working Papres 97-12, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  14. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
  15. To, Theodore, 1996. "Multi-period Competition with Switching Costs: An Overlapping Generations Formulation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 81-87, March.
  16. Yongmin Chen & Robert W. Rosenthal, 1992. "Dynamic Duopoly with Slowly Changing Customer Loyalties," Papers 0037, Boston University - Industry Studies Programme.
  17. Rustichini, Aldo, 1999. "Optimal Properties of Stimulus--Response Learning Models," Games and Economic Behavior, Elsevier, vol. 29(1-2), pages 244-273, October.
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