EconPapers    
Economics at your fingertips  
 

Rebate or Bait? A Model of Regret and Time Inconsistency in Consumer Behaviour

Francesco Drago and Dora Kadar

No 5757, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper we develop a theory of time-inconsistency and regret that is motivated by evidence on a 'price discrimination' technique widespread in the United States, namely mail-in-rebate promotions. Our model combines partial naivete about future self-control problems and the sunk-cost effect (regret). We assume that agents deviating from their past choices suffer a certain emotional disutility from having brought a bad decision in the past and that this emotional disutility is negatively related to the length of the period between the choice made and the deviation from it. In the context of our application the model explains why in a multi period setting a large number of consumers respond to the rebate offers intending to redeem the rebate and then fail to provide the necessary effort when it comes to collect their money. Moreover, consumer failure to accomplish a task planned in the past (e.g. redeeming the rebate) is more likely when the deadline of completion is longer. This prediction is supported by experimental studies on various forms of procrastination and by field and experimental evidence on mail-in-rebates. We review a number of areas for which the theory may have important implications.

Keywords: mail-in-rebate; naivete; regret; time inconsistency (search for similar items in EconPapers)
JEL-codes: C70 D11 D91 (search for similar items in EconPapers)
Date: 2006-07
New Economics Papers: this item is included in nep-dcm and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5757 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:5757

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=5757

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2020-10-23
Handle: RePEc:cpr:ceprdp:5757