Services as Experience Goods: An Empirical Examination of Consumer Learning in Automobile Insurance

Mark Israel

American Economic Review, 2005, vol. 95, issue 5, 1444-1463

Abstract: Theoretical work on experience goods sets out three empirical questions. How accurate is information at initial purchase? How rapidly do consumers learn from product experiences? And how much impact does learning have on purchase decisions? I answer these questions for the case of automobile insurance, using a panel of 18,595 consumers from one firm. My principal findings are: patterns of consumer departures following claims point to learning; consumers enter the firm overly optimistic about its quality and are generally disappointed by experience; and the impact of learning is mitigated by the slow arrival of claims and the development of lock-in.

Date: 2005
Note: DOI: 10.1257/000282805775014335
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