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Salience and (Non-)Buyer's Remorse: Optimal Nonlinear Pricing with Cognitively Constrained Consumers

Author

Listed:
  • Aaron L. Bodoh-Creed
  • Brent R. Hickman
  • John A. List
  • Ian Muir
  • Gregory K. Sun

Abstract

Nonlinear pricing theory predicts that firms extract surplus by inducing consumers to self-sort into ex-post optimal contracts. Large-scale subscription experiments at Lyft reveal deviations from frictionless sorting. We develop a structural model in which ex-ante subscription choice is affected by salience failures, forecast errors, and impulsivity, while conditional consumption remains utility-maximizing. Consumer preferences and behavioral primitives remain nonparametrically identified. Counterfactuals show a frictionless subscription program raises profits by 5.72% over optimal linear pricing, but estimated frictions nearly eliminate these gains. Recovering a meaningful share requires substantial friction mitigation and within-firm, cross-team coordination. We explore contract-designs that mitigate costly non-subscribership.

Suggested Citation

  • Aaron L. Bodoh-Creed & Brent R. Hickman & John A. List & Ian Muir & Gregory K. Sun, 2026. "Salience and (Non-)Buyer's Remorse: Optimal Nonlinear Pricing with Cognitively Constrained Consumers," NBER Working Papers 35003, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35003
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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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