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Decision costs and price sensitivity: Field experimental evidence from India

Research1 min read

Author: Dean Spears

Published in: Journal of Economic Behavior & Organization

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Abstract:

Poor people often exhibit puzzlingly high sensitivity to low prices of important consumer health goods. This paper proposes decision costs as one explanation: whether a person buys at a price depends on whether she carefully considers the offer, which itself depends on price.

A simple model predicts that deliberation costs (1) increase sensitivity to low prices; (2) can prevent cost-sharing from targeting products to buyers with high value; and (3) can have larger effects on poorer people.

The principal contribution of this paper is a field experiment that sold hand-washing soap in rural India. Participants were randomly assigned to be offered soap for either a low or very low price, which was experimentally crossed with assignment to a control group or to a treatment that required deliberation. Results matched predictions of the model: the treatment decreased price sensitivity relative to the control group, and increased targeting of product take-up by need.

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r.i.c.e. is a non-profit research organization focused on health and well-being in India. Our core focus is on children in rural north India. Our research studies health care at the start of life, sanitation, air pollution, maternal health, social inequality, and other dimensions of population-level social wellbeing.

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