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Adaptive Learning Models of Consumer Behaviour (first version)

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Abstract

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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  • Ed Hopkins, 2002. "Adaptive Learning Models of Consumer Behaviour (first version)," ESE Discussion Papers 80, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:80
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    1. 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 848-881, September.
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    3. Borgers, Tilman & Sarin, Rajiv, 2000. "Naive Reinforcement Learning with Endogenous Aspirations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(4), pages 921-950, November.
    4. Hopkins, Ed, 1999. "Learning, Matching, and Aggregation," Games and Economic Behavior, Elsevier, vol. 26(1), pages 79-110, January.
    5. 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.
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    11. Drew Fudenberg & David K. Levine, 1998. "The Theory of Learning in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061945, March.
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    13. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
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    16. 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.
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