CONSUMER SEARCH BEHAVIOR AND SUNK COSTS

This paper presents the results of four economic experiments involving 41 undergraduate students who were assigned the task of searching for the lowest price from a known distribution of prices. Economic theory predicts that individuals should continue to draw until the expected gain of another search is less than the marginal search cost. Additionally, once individuals have made a draw and then continued, they should never return to a price drawn earlier (exercise recall). Both of these predictions are tested in the paper and the results show that behavior is not always consistent with them. It appears that individuals are making decisions based on the total return from searching, rather than simply the marginal return from another draw. © 1990.