Do Consumers Ever Learn? Analysis of Segment Behavior in Experimental Markets

Journal of Behavioral Decision Making, Vol. 13, 2000

16 Pages Posted: 1 Jun 2006

See all articles by Gerard J. Tellis

Gerard J. Tellis

University of Southern California - Marshall School of Business, Department of Marketing

Jaideep Prabhu

Imperial College Business School; University of Cambridge - Judge Business School

Abstract

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 differ on the basis of learning; how do these differences, when aggregated, affect market efficiency; 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 effect of this segment on market efficiency 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, specifically 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 different 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 findings for theory and practice

Keywords: rationaIity, Iearning, market efficiency

Suggested Citation

Tellis, Gerard J. and Prabhu, Jaideep and Prabhu, Jaideep, Do Consumers Ever Learn? Analysis of Segment Behavior in Experimental Markets. Journal of Behavioral Decision Making, Vol. 13, 2000, Available at SSRN: https://ssrn.com/abstract=905542

Gerard J. Tellis

University of Southern California - Marshall School of Business, Department of Marketing ( email )

Hoffman Hall 701
Los Angeles, CA 90089-0443
United States
213-740-5031 (Phone)
213-740-7828 (Fax)

HOME PAGE: http://gtellis.net

Jaideep Prabhu (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 20 7594 9109 (Phone)
+44 20 7823 7685 (Fax)

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