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Sequential search with a price freeze option: theory and experimental evidence

Published online by Cambridge University Press:  02 April 2025

Emanuel Marcu  and
Charles N. Noussair Open the ORCID record for Charles N. Noussair [Opens in a new window]
Emanuel Marcu*
Affiliation:
Department of Econometrics and Operations Research, Tilburg University, Tilburg, Netherlands
Charles N. Noussair*
Affiliation:
Department of Economics and the Economic Science Laboratory, University of Arizona, Tucson, USA
*
e.y.marcu@uvt.nl
cnoussair@email.arizona.edu
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Abstract

We introduce price freeze options into a model of sequential search. The model's predictions are tested in a laboratory experiment. The experiment varies (1) whether freezing is possible or not, (2) the cost of freezing, and (3) the time horizon. Overall, the observed treatment effects are consistent with the predictions of our model. Assuming that individuals experience regret, fail to ignore sunk search costs, misperceive the number of periods remaining, or are risk-averse, does not improve upon the performance of the model. Our results support the use of the assumption of optimal search behavior in theoretical and empirical studies.

Keywords

Sequential searchPrice freezingExperimentUnder-searchingImperfect recallD83C91
Type
Original Paper
Information
Experimental Economics , Volume 27 , Issue 5 , November 2024 , pp. 1106 - 1139
Copyright
Copyright © The Author(s), under exclusive licence to Economic Science Association 2024

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Footnotes

We especially thank Asaf Plan, Amnon Rapoport, the editor and three anonymous referees, for providing us with detailed comments. We thank Jaap Abbring, Maria Arbatskaya, Jordi Brandts, Bart Bronnenberg, Jeff Campbell, David Cesarini, Guillaume Frechette, Ernan Haruvy, Ron Oaxaca, Andrew Schotter, Tiemen Woutersen, participants at the 2017 North American Economic Science Association Meetings, as well as seminar participants at the Universities of Arizona, Alicante, Maryland, Melbourne, Technology-Sydney, and Texas-Dallas, as well as Emory, New York and Tilburg Universities for their helpful comments. We thank Abdolkarim Sadrieh for providing helpful software code. We thank the Economic Science Laboratory and the Eller College of Management at the University of Arizona for funding. The replication material for the study is available at DOI 10.17605/OSF.IO/TRJQZ.

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