Searching for the Lowest Price When the Distribution of Prices Is Unknown

Abstract

Search theory, which purports to explain how individuals behave when they have imperfect or incomplete market information, has received much attention recently. Economists have derived a number of results characterizing the effects of various changes on optimal-search behavior. Almost without exception, these results depend on the untenable assump- tion that searchers know the probability distribution from which they are searching. This paper studies the effect of assuming instead that searchers learn about the probability distribution while they search from it. Not invariably, but in many instances, the qualitative properties of optimal-search strategies-and thus the behavior of those who follow them-are the same as in the simpler case when the distribution is assumed known.