You Can Lead a Horse to Water: Spatial Learning and Path Dependence in Consumer Search

We develop and estimate a model of consumer search with spatial learning. Consumers make inferences from previously searched objects to unsearched objects that are nearby in attribute space, generating path dependence in search sequences. The estimated model rationalizes patterns in data on online consumer search paths: search tends to converge to the chosen product in attribute space, and consumers take larger steps away from rarely purchased products. Eliminating spatial learning reduces consumer welfare by 13%: cross-product inferences allow consumers to locate better products in a shorter time. Spatial learning has important implications for product recommendations on retail platforms. We show that consumer welfare can be reduced by unrepresentative product recommendations and that consumer-optimal product recommendations depend both on consumer learning and competition between platforms.

This talk is presented by the Applied Microeconomics/Industrial Organization Seminar, sponsored by the Department of Economics with generous gifts given through the Jean Coven Speakers Fund in Economics and the Economics Strategic Fund.