Bounded Rationality as Deliberation Costs: Theory and Evidence from a Pricing Field Experiment in India

44 Pages Posted: 6 Aug 2009

See all articles by Dean Spears

Dean Spears

University of Texas at Austin; Economics and Planning Unit, ISI-Delhi; r.i.c.e.; IZA Institute of Labor Economics

Date Written: August 3, 2009

Abstract

A field experiment verifies a theory of bounded rationality as deliberation costs that can explain findings from previous experiments on pricing in developing countries. The model predicts that (1) eliminating deliberation costs will increase purchasing at a higher price without impacting behavior at a lower price, (2) bounded rationality has certain greater effects on poorer people, and (3) deliberation costs can suppress screening by prices. Each prediction is confirmed by an experiment that sold soap in rural Indian villages. The experiment interacted assignment to different subsidized prices with a treatment that eliminated marginal deliberation costs. The results suggest implications of bounded rationality for theory and social policy.

Keywords: bounded rationality, deliberation costs, pricing, social marketing, cost-sharing, handwashing with soap, field experiment, India, development, behavioral economics

JEL Classification: D12, O12, D03,

Suggested Citation

Spears, Dean, Bounded Rationality as Deliberation Costs: Theory and Evidence from a Pricing Field Experiment in India (August 3, 2009). Available at SSRN: https://ssrn.com/abstract=1444912 or http://dx.doi.org/10.2139/ssrn.1444912

Dean Spears (Contact Author)

University of Texas at Austin ( email )

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Economics and Planning Unit, ISI-Delhi ( email )

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