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Testing Alternative Learning Theories: Evidence From Subscription Contracts
Author(s) -
Ater Itai,
Landsman Vardit
Publication year - 2018
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12185
Subject(s) - heuristics , simple (philosophy) , tariff , microeconomics , economics , business , marketing , computer science , philosophy , epistemology , international trade , operating system
Analyzing panel data of 32,650 checking‐account holders facing a menu of three‐part tariff contracts, we document several findings that indicate that subscribers use simple heuristics to learn about the desirability of the contracts they have chosen. Our main findings are: subscribers change contracts in a direction that diminishes the probability of re–experiencing the trigger for switching; subscribers exhibit recency effects in switching; and after switching the majority of switchers systematically pay higher fees than they did before. We argue that directional learning theory best explains why consumers behave in a manner that yields suboptimal economic outcomes.