Consumer Inertia and Switching Behavior

• Applicant: Professor Dr. Heiko Karle
• Subject Area: Economic Policy, Applied Economics ; Statistics and Econometrics ; Economic Theory
• Term: since 2023
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 462020252

The project "Consumer Inertia and Switching Behavior" aims to examine behavioral explanations for the observed reluctance of consumers to search and switch to better deals. The project will develop a coherent market model that captures different psychological mechanisms that lead to consumer inertia: inattention, procrastination, and psychological switching costs through loss aversion. The model combines such consumer behavior with profit-maximizing firms and asks what features of the market and regulation thereof foster consumer inertia. Once fully developed, this model will be empirically investigated. The empirical analysis will make use of several data sets and encompasses descriptive regressions as well as the estimation of structural demand models. Based on individual data from own survey experiments, the project investigates how easy access to switching opportunities (which will be made available randomly to a subset of users) affects users’ switching behaviour for electricity and mobile phone contracts. The design of the field study allows to account for personal characteristics such as risk and loss attitudes, inattention, and procrastination as possible drivers for heterogeneous responses among users. In addition, the project will use a repeated, representative consumer survey that combines information on consumers’ purchasing decisions, their socioeconomic characteristics, and their attitudes towards risk and loss aversion, inattention, and procrastination to study contract-switching behavior and to elicit beliefs about the expected surplus from switching. The panel data study will also include randomly assigned treatments regarding, for example, switching reminders that are not only interesting from a policy perspective but help distinguish loss-aversion-based inertia from inertia that results from inattention and procrastination.

• DFG Programme: Research Units
• Subproject of: FOR 5392: Consumer Preferences, Consumer Mistakes, and Firms' Response
• International Connection: Austria
• Cooperation Partners: Professor Dr. Heiner Schumacher; Professorin Dr. Christine Zulehner