Do consumers ever learn? Analysis of segment behavior in experimental markets
✍ Scribed by Jaideep Prabhu; Gerard J. Tellis
- Publisher
- John Wiley and Sons
- Year
- 2000
- Tongue
- English
- Weight
- 173 KB
- Volume
- 13
- Category
- Article
- ISSN
- 0894-3257
No coin nor oath required. For personal study only.
✦ Synopsis
Economists argue that, despite cognitive limitations, economic agents arrive at optimal choice rules by learning. The assumption is that consumers, for example, are adaptively rational. Adaptive rationality raises a host of issues. We address three of these in the context of experimental markets: do consumers dier on the basis of learning; how do these dierences, when aggregated, aect market eciency; and how do consumers learn? Analysis of our experimental data reveals the following. First, multiple segments of consumers exist on the basis of learning. Second, the largest segment consists of subjects who do not learn despite timely feedback and motivation. Third, although some consumers do learn to make optimal choices, the eect of this segment on market eciency is cancelled by an equal number of subjects who learn' false relations. Finally, although subjects do not learn strict rationality even with experience, they are in the aggregate not so irrational as to allow highly suboptimal brands to survive. Further analysis of how consumers learn, speci®cally on the cues (signals) and the rules consumers employ in making choices over time leads to the following two conclusions. First, some signals make learning more easy than others: for example, providing market share information improves learning but not as much as providing quality information does. Second, people employ dierent rules depending upon the type of information they have. For example, consumers making decisions based only on price information are more likely to use a heuristic like buy a medium-priced product provided it has not failed in the past'. Consumers making decisions based on price and quality information may employ a heuristic such as `buy top quality products regardless of price'. We discuss the implications of these ®ndings for theory and practice.