In this paper we investigate experimentally if people search optimally and how price promotions influence search behavior. We implement a sequential search task with exogenous price dispersion in a baseline treatment and introduce discounts in two experimental treatments. We nd that search behavior is roughly consistent with optimal search but also observe some discount biases. If subjects don't know in advance where discounts are offered the purchase probability is increased by 19 percentage points in shops with discounts, even after controlling for the bene t of the discount and for risk preferences. If consumers know in advance where discounts are given then the bias is only weakly signi cant and much smaller (7 percentage points).
Published: Economic Record, 2011, 87(279), pp. 575–586.