Advertising, imperfect information, and the effect of learning on consumer behaviour

This thesis incorporates a role for advertising in a neoclassical model of consumer behaviour in an environment with imperfect information, Advertising is seen as providing an initial set of parameters in the consumer's subjective beliefs. The thesis considers the role of learning through experience over time, as an alternative source of information. The ability to learn is shown to affect consumer behaviour under a number of assumptions about the state of the environment. The models under consideration are complex, and analytical solutions are difficult to disentangle. For this reason the thesis makes use of numerical analysis to provide solutions for the specific parameter values assumed. The desire of a consumer to gain information is shown to generate a pattern of purchases of a new good which accords with the empirical evidence, over time, we find that the initial advertising statement declines in importance as a component of current beliefs, as the consumer places greater reliance on his own experience. We contrast different learning mechanisms in an attempt to find the most efficient process for gaining complete information, and conclude that no one learning process is always dominant, but depends on the parameters in the environment.