Working Paper: NBER ID: w23256
Authors: Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer
Abstract: We present a theory in which the choice set cues a consumer to recall a norm, and surprise relative to the norm shapes his attention and choice. We model memory based on Kahana (2012), where past experiences that are more recent or more similar to the cue are recalled and crowd out others. We model surprise relative to the norm using our salience model of attention and choice. The model predicts unstable and inconsistent behavior in new contexts, because these are evaluated relative to past norms. Under some conditions, repeated experience causes norms to adapt, inducing stable – sometimes rational – behavior across different contexts. We test some of the model’s predictions using an expanded data set on rental decisions of movers between US cities first analyzed by Simonsohn and Loewenstein (2006).
Keywords: Memory; Attention; Choice; Norms; Consumer Behavior
JEL Codes: D03
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| memory recall (D87) | pricing norms (L11) |
| past experiences (C92) | norms (D63) |
| norms (D63) | consumer choice (D10) |
| repeated experiences (C90) | norms (D63) |
| memory (Y60) | unstable behavior in new contexts (D91) |
| norms (D63) | willingness to pay (D11) |