Consumer Inertia, Choice Dependence and Learning from Experience in a Repeated Decision Problem

Eugenio Miravete Marin, Ignacio Palacios-huerta

Research output: Contribution to journalArticle

24 Citations (Scopus)

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 empirical setting is a tariff experiment, when optional measured tariffs for local telephone calls were introduced unanticipatedly. We find that consumers tend to align their choices of tariff and telephone usage levels correctly. 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.
Original languageEnglish
Pages (from-to)524-537
JournalThe Review of Economics and Statistics
Volume96
Issue number3
Early online date15 May 2013
DOIs
Publication statusPublished - Jul 2014

Cite this