When information on product quality is not perfect, theories in the areas of consumer rationality, inference, and risk-aversion suggest at least three consumer choice strategies: best value, price-seeking, and price aversion. The authors relate these choice strategies through a common utility model and show they are three types of response to price: rational, overweighting, and underweighting, respectively. Through a simulated shopping experiment, they show the factors that discriminate when consumers use these strategies. In particular, they find that price-seeking due to inference is not strictly rational and can lead to a positive response to price when information on quality is low but quality is important. Although information on quality generally promotes the rational choice of best value, experience neither promotes rationality nor mitigates inference. Ironically, subjects seem to react to but do not learn from experience.
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