Salience and (Non-)Buyer's Remorse: Optimal Nonlinear Pricing with Cognitively Constrained Consumers

Aaron L. Bodoh-Creed, Brent R. Hickman, John List, Ian Muir and Gregory K. Sun

No 35003, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Nonlinear pricing theory predicts that firms extract surplus by inducing consumers to self-sort into ex-post optimal contracts. Large-scale subscription experiments at Lyft reveal deviations from frictionless sorting. We develop a structural model in which ex-ante subscription choice is affected by salience failures, forecast errors, and impulsivity, while conditional consumption remains utility-maximizing. Consumer preferences and behavioral primitives remain nonparametrically identified. Counterfactuals show a frictionless subscription program raises profits by 5.72% over optimal linear pricing, but estimated frictions nearly eliminate these gains. Recovering a meaningful share requires substantial friction mitigation and within-firm, cross-team coordination. We explore contract-designs that mitigate costly non-subscribership.

JEL-codes: C14 C51 C93 D04 L4 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-com, nep-exp and nep-upt
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Working Paper: Salience and (Non-)Buyer's Remorse: Optimal Nonlinear Pricing with Cognitively Constrained Consumers (2026)
Working Paper: Salience and (Non-)Buyer's Remorse: Optimal Nonlinear Pricing with Cognitively Constrained Consumers (2026)
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