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Consumer inertia, choice dependence and learning from experience in a repeated decision problem

Miravete, Eugenio J. and Palacios-Huerta, Ignacio (2013) Consumer inertia, choice dependence and learning from experience in a repeated decision problem. Review of Economics and Statistics, 96 (3). pp. 524-537. ISSN 0034-6535

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Identification Number: 10.1162/REST_a_00386

Abstract

Understanding when and how individuals think about real-life problems is a central question in economics. This paper studies the role of inertia (inattention), state dependence and learning. The natural setting is the Kentucky tariff experiment when optional measured tariffs for local telephone calls were introduced. We find that consumers tend to align correctly their choices of tariff and telephone usage levels. Despite low potential savings, mistakes are not permanent as individuals actively engage in tariff switching in order to reduce the monthly cost of telephone services. Ignoring unobservable heterogeneity and the endogeneity of past choices would have reversed these results.

Item Type: Article
Official URL: http://www.mitpressjournals.org/loi/rest
Additional Information: © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology
Subjects: H Social Sciences > HC Economic History and Conditions
Sets: Departments > Management
Date Deposited: 23 May 2013 10:45
Last Modified: 28 Aug 2014 13:57
URI: http://eprints.lse.ac.uk/id/eprint/49996

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