The Effects of Experience on Preference Uncertainty: Theory and Empirics for Public and Quasi-Public Goods

This paper develops a model of demand estimation in which consumers learn about their true preferences through consumption experiences. We develop a theoretical model of Bayesian updating, perform comparative statics over the model, and show how the theoretical model can be consistently incorporated into a reduced form econometric model. We then estimate the model using data collected for two quasi‐public goods. We find that the predictions of the theoretical exercise that additional experience with a good will make consumers more certain over their preferences in both mean and variance are supported in each case. corresponding author, Długa 44/50, 00‐241 Warsaw, Poland, (+48)225549174, [email protected] Stirling FK9 4LA, Scotland, UK, (+44)01786466410, [email protected] 525 Stokely Management Center, Knoxville, TN, 37996‐0550, USA, (+1)8659748114, [email protected]