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Decision costs and price sensitivity: Field experimental evidence from India

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  • Spears, Dean

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.

Suggested Citation

  • Spears, Dean, 2014. "Decision costs and price sensitivity: Field experimental evidence from India," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 169-184.
  • Handle: RePEc:eee:jeborg:v:97:y:2014:i:c:p:169-184
    DOI: 10.1016/j.jebo.2013.06.012
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    Cited by:

    1. Yohan Renard, 2022. "From fees to free: User fee removal, maternal health care utilization and child health in Zambia," Post-Print hal-04216814, HAL.
    2. Spears, Dean & Hathi, Payal & Coffey, Diane, 2019. "Willingness to Sacrifice for Climate Mitigation in Representative Samples of Indian Adults," IZA Policy Papers 147, Institute of Labor Economics (IZA).
    3. Hoffmann, Vivian E. & Moser, Christine M. & Herrman, Timothy, 2017. "Demand for aflatoxin-safe maize in Kenya: Dynamic response to price and advertising," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259133, Agricultural and Applied Economics Association.
    4. Maja Adena & Rustamdjan Hakimov & Steffen Huck, 2024. "Charitable Giving by the Poor: A Field Experiment in Kyrgyzstan," Management Science, INFORMS, vol. 70(1), pages 633-646, January.
    5. Vivian Hoffmann & Christine M. Moser & Timothy J. Herrman, 2021. "Demand for Aflatoxin‐Safe Maize in Kenya: Dynamic Response to Price and Advertising," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 275-295, January.
    6. Spears Dean, 2011. "Economic Decision-Making in Poverty Depletes Behavioral Control," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-44, December.
    7. Renard, Yohan, 2022. "From fees to free: User fee removal, maternal health care utilization and child health in Zambia," World Development, Elsevier, vol. 156(C).
    8. Wang, Lei & Song, Chuyu & Xian, Yue & Sylvia, Sean & Rozelle, Scott, 2024. "Willingness-to-pay for early childhood development: A field experiment in Western China," China Economic Review, Elsevier, vol. 85(C).
    9. Spears, Dean, 2019. "The Asymmetry of Population Ethics: Experimental Social Choice and Dual-Process Moral Reasoning," IZA Discussion Papers 12537, Institute of Labor Economics (IZA).

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