Separately Identifying the Screening, Signaling, and Sunk-Cost Effects of Price: Do Students Who Pay More Study More?

I implement a novel experimental design that separately identifies the screening, signaling, and sunk-cost effects of price. The design requires elements from both lab and field experimentation. Results from two different studies refute the sunk-cost bias: People who pay more for a product do not use the product more intensely. However, there is some evidence that price may signal information to the consumer, thus creating a causal effect that is distinct from sunk-cost bias. In particular, students who pay more for an educational product sometimes study harder, but only due to changes in beliefs, not the actual amount paid. These findings, taken together, suggest that subsidies will never dampen total utilization so long as consumers are made fully aware of the non-subsidized price.