2014 - Working Papers: Managerial Economics
Parametric recoverability of preferences, 70 pp.
Y. Halevy, D. Persitz and L. Zrill
(Working Paper No. 8/2014)
Research no.: 06940100
We recover approximate parametric preferences from consistent and inconsistent consumer choices. The procedure seeks to utilize revealed preference information contained in choices by minimizing its ranking inconsistency with the proposed parametric preferences. We provide a novel characterization of the Varian Inefficiency Index, generalize it to a goodness-of-fit measure of recovered preferences, and decompose the latter into inconsistency and misspecification measures. This provides a reasonable way to test restrictions on parametric models. An application of the method to the data set constructed by Choi et al. (2007) to study choice under risk suggests more pronounced non-expected utility preferences than previously suggested.
How do customers learn? Evidence from subscription contracts, 48 pp.
I. Ater and V. Landsman
(Working Paper No. 3/2014)
Research no.: 07840100
To investigate mechanisms underlying consumer learning, we analyze panel data of 32,650 owners of checking accounts facing a newly introduced menu of three-part tariff subscription contracts. We focus on contract switching decisions as an indication for learning, and identify two triggers for switching: adoption of a contract with an excessively large allowance, and the experience of overage fees. The contract changes occurred quickly after trigger realization, and each led to a different outcome. Customers who experienced overage fees switched to contracts with larger allowances and eventually paid more after the switch, while customers who adopted contracts with excessively large allowances switched to contracts with smaller allowances and ended up paying less. We argue that our findings are best explained by directional learning and are inconsistent with Bayesian learning.
