Consumer Inferences from Product Rankings: The Role of Beliefs in Search Behavior

78 Pages Posted: 24 Jul 2024

See all articles by Jessica Fong

Jessica Fong

University of Michigan Ross School of Business

Olivia Natan

University of California, Berkeley

Ranmit Pantle

Kellogg School of Management

Date Written: July 16, 2024

Abstract

Consumer behavior is not only influenced by realized firm strategies (e.g., price) but also by beliefs about such strategies (e.g., future discounts). Evaluating them typically involves short-term A/B tests, during which consumers' beliefs may differ from those they would hold if the policy were implemented long-term. Failing to account for belief responses may misattribute behavioral changes to model primitives, leading to mispredicting future behavior. We demonstrate this in the context of online product rankings, where consumers typically search among products displayed toward the top of the page first. Through two incentivized lab experiments, we show that these rank effects are due not only to cost differences but also to beliefs, a mechanism largely ignored in existing empirical work. Moreover, beliefs adjust gradually in response to ranking algorithms. Imposing rational expectations leads to incorrect estimates of search costs, implying that it is more costly to search among top-of-page products. We show that consumers are less susceptible to platform steering when beliefs are modeled, and that welfare losses are overstated when beliefs are misattributed to costs. 

Keywords: Consumer Search, Consumer Beliefs, Experiments, Position Effects, Product Rankings, Platform Steering

JEL Classification: D83, C93, L81, D84

Suggested Citation

Fong, Jessica and Natan, Olivia and Pantle, Ranmit, Consumer Inferences from Product Rankings: The Role of Beliefs in Search Behavior (July 16, 2024). Available at SSRN: https://ssrn.com/abstract=4896993 or http://dx.doi.org/10.2139/ssrn.4896993

Jessica Fong

University of Michigan Ross School of Business

701 Tappan Ave
Ann Arbor, MI 48109
United States

Olivia Natan (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Ranmit Pantle

Kellogg School of Management ( email )

2211 Campus Drive
Evanston, IL 60208
United States

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