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Consumer Behavior Under Imperfect Information: A Review of Psychological and Marketing Research as It Relates to Economic Theory

Wilde, Louis L. (1983) Consumer Behavior Under Imperfect Information: A Review of Psychological and Marketing Research as It Relates to Economic Theory. Social Science Working Paper, 229. California Institute of Technology , Pasadena, CA. (Unpublished)

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In recent years, theoretical economists have begun to examine the effects of imperfect information on the existence, uniqueness, and efficiency of market equilibria, both in labor markets and in consumer product markets. Two significant conclusions can be drawn from this literature: (1) the properties of market equilibria are extremely sensitive to the search strategies used by consumers or workers, and (2) the key to “stabilizing” markets at price or wage distributions which are competitive in an appropriate sense is direct comparison shopping. With direct comparison shopping, consumers, for example, actually compare brands to each other and choose the best from those that they have seen. Economists commonly assume that consumers search by defining a hypothetical reservation (or cutoff) level against which brands or jobs are compared sequentially. Economic theory, however, is not (or at least has not been) very useful in identifying which search strategies are appropriate to specific informational settings. Moreover, since consumers and workers who face positive information acquisition costs are likely to choose a “satisfactory” alternative rather than an “optimal” one, the issue of which search strategies people should use may only be resolvable empirically.

Item Type:Report or Paper (Working Paper)
Additional Information:This paper is a substantially revised version of CIT SSWP #229 (December 1977). I would like to thank Alan Schwartz for extremely helpful comments on the original draft. Peter Lichtenstein, Charles Plott, and Steve Salop provided additional comments on an earlier revision and the editors of this volume did the same for the final draft. This research was supported in part by NSF Grant #SESS0-03863. Published in Advances in Behavioral Economics, vol. 2, edited by Len Green and John Kagel. Norwood, NJ: Ablex Publishing Co., 1984.
Group:Social Science Working Papers
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Series Name:Social Science Working Paper
Issue or Number:229
Record Number:CaltechAUTHORS:20171019-151230229
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82523
Deposited By: Jacquelyn Bussone
Deposited On:20 Oct 2017 17:52
Last Modified:03 Oct 2019 18:55

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