Adaptive learning models of consumer behavior

Ed Hopkins

Journal of Economic Behavior & Organization, 2007, vol. 64, issue 3-4, 348-368

Abstract: In a model of dynamic duopoly, optimal price policies are characterized assuming consumers learn adaptively about the relative quality of the two products. A contrast is made between belief-based and reinforcement learning. Under reinforcement learning, consumers can become locked into the habit of purchasing inferior goods. Such lock-in permits the existence of multiple history-dependent asymmetric steady states in which one firm dominates. In contrast, belief-based learning rules must lead asymptotically to correct beliefs about the relative quality of the two brands and so in this case there is a unique steady state.

Keywords: Learning; Consumer; behavior; Dynamic; pricing; Behavioral; economics; Reinforcement; learning; Market; structure (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Adaptive Learning Models of Consumer Behaviour (2010)
Working Paper: Adaptive Learning Models of Consumer Behaviour (2006)
Working Paper: Adaptive Learning Models of Consumer Behaviour (2004)
Working Paper: Adaptive Learning Models of Consumer Behaviour (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:64:y:2007:i:3-4:p:348-368

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