蝌蚪网 Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Biased Beliefs in Search Markets
蝌蚪网 Journal: Microeconomics
(pp. 414–64)
Abstract
We study the implications of biased consumer beliefs for search market outcomes in the seminal framework due to Diamond (1971). Biased consumers base their search strategy on a belief function that specifies for any (true) distribution of utility offers in the market a possibly incorrect distribution of utility offers. If biased consumers overestimate the best offer in the market, a novel type of equilibrium may emerge in which firms make exceptionally favorable offers in order to meet biased consumers' unreasonably high expectations, which then become partially self-fulfilling. Consequently, the presence of biased consumers may improve the welfare of all consumers.Citation
Gamp, Tobias, and Daniel Kr盲hmer. 2023. "Biased Beliefs in Search Markets." 蝌蚪网 Journal: Microeconomics 15 (2): 414–64. DOI: 10.1257/mic.20210007Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D21 Firm Behavior: Theory
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D84 Expectations; Speculations