Working papers

Less is more: The single-use effect in subscriptions Link to paper

Americans spend on average $348 per year on unused subscriptions (Huddleston, 2019). Supported by experimental evidence from 309 subjects, this paper introduces a cognitive bias that explains sub-optimal consumer behavior in the context of subscriptions and insurance. When contrasted against a longer subscription on a binary choice menu, adding free subscription to a single-use option can shift preferences toward the longer option. I show that this dominance violation stems from selective attention. Text analysis of subjects’ open-ended comments suggests that costs per subscribed time period become a focal point for comparison when both subscription alternatives involve time periods. In contrast, a single-use option cues evaluation based on the probability of use. The discrepancy in decision criteria is reflected in the distribution of subjects’ willingness-to-pay for the corresponding short option when contrasted against the price for the long option. This paper outlines a salience model based on Bordalo et al. (2023) generating novel, testable predictions that fit the data. Awareness of this phenomenon can be relevant for regulators seeking to protect consumers from unused subscriptions and insurance.

Time pressure reduces financial bubbles: Evidence from forecasting experiments with M. Anufriev and J. Tuinstra Working paper (Revision requested by Experimental Economics)

From previous laboratory experiments, we know that price bubbles may emerge in asset markets due to participants’ tendency to coordinate on extrapolative expectations. In this paper we investigate whether time pressure, which is relevant for many decisions on financial markets, exacerbates or mitigates these bubbles. With increasing time pressure, we find that price volatility decreases and prices tend to converge faster to their fundamental value. This is due to participants using simpler, adaptive forecasting strategies under high time pressure. In addition, substantially increasing the number of decision periods in our experiment allows us to study whether the bubbles and crashes emerging under low time pressure are persistent. We find that, in the long run, prices typically converge to their fundamental value. This can be explained by participants eventually switching from extrapolative to adaptive forecasting strategies.