Learning and the Cognitive Algebra of Price Expectations

Abstract

We investigate how consumers learn to form price expectations for multiattribute goods in novel product categories. We hypothesize that expectations of price among novice consumers will be dominated by simplistic intuitive conjectures about the costs of goods that would cause expectations of prices to depart systematically from “true” values. Although we hypothesize that judgments should become more accurate—and configural—as expertise grows, we also hypothesize that learning will be limited, with even experienced consumer judges displaying some of the same biases in price expectations observed among novices. We tested these hypotheses in two studies: a dynamic laboratory task that simulated a period of learning about prices in a novel category and a cross‐sectional survey that compared the multiattribute price‐expectation rules used by novice and experienced consumers. The results provide a somewhat surprising view of the dynamics of price‐expectation policies. First, Study 1 shows that composition rules used by novices can be highly configural in nature, even when they lack knowledge about the true rules that govern the price of goods in a category. Second, both studies support the hypothesis of limited learning, with judgments strategies of experienced consumers being only slightly more accurate in anticipating true normal market prices than those used by inexperienced consumers. A discussion of the implications of the work for research in how consumers learn to form price expectations is offered.

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