Price beliefs and experience: Do consumers’ beliefs converge to empirical distributions with repeated purchases?

• We collect data on subjective beliefs about price distributions in the online market for college textbooks.
• We compare these beliefs to price data we collect using a (an automated) web scraper.
• Inexperienced consumers tend to overestimate the average price in the online market.
• Subjective beliefs about the mean of the distribution converge to the empirical mean with experience.
• Our findings contradict standard assumptions used in empirical applications of consumer search models.

We use data on consumers’ subjective beliefs about the distribution of prices in an online marketplace to investigate two questions of interest. First, when consumers face price uncertainty, to what extent do their beliefs about the distribution of prices reflect the actual empirical price distribution? Second, do consumers learn about features of the empirical distribution through experience? Using reported expectations for online textbook prices from a survey of 1224 college students, we find that consumers with no prior experience in purchasing textbooks online tend to expect online prices to be higher than what is observed empirically. However, consumers with more experience in the marketplace generally have more accurate beliefs about the price distribution, which is consistent with learning.