Rules of Thumb and Attention Elasticities: Evidence from Under- and Overreaction to Taxes / William Morrison, Dmitry Taubinsky.

Format:

Book

Author/Creator:

Morrison, William.

Contributor:

National Bureau of Economic Research.

Taubinsky, Dmitry.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26180.

NBER working paper series no. w26180

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Rules of Thumb and Attention Elasticities

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

This paper tests costly attention models of consumers' misreaction to opaque taxes. We report an online shopping experiment that involves shrouded sales taxes that are exogenously varied within consumer over time. Some consumers systematically underreact to sales taxes while others systematically overreact, but higher stakes decrease both under- and overreaction. This is consistent with consumers using heterogeneous rules of thumb to compute the opaque tax when the stakes are low, but using costly mental effort at higher stakes. The results allow us to differentiate between various theories of limited attention. We also develop novel econometric techniques for quantifying individual differences.

Notes:

Print version record

August 2019.