Buy Baits and Consumer Sophistication: Field Evidence from Instant Rebates

Are consumers in the marketplace aware of their cognitive limitations? I answer this question in the context of a ubiquitous form of price discrimination: instant rebates that require active redemption. In a large-scale field experiment with a major online retailer, I find that consumers correctly increase demand when the firm offers a redemption reminder, but they fail to reduce demand when the firm increases the hassle required to redeem. Structural estimates reveal that, while consumers are sophisticated about the probability of forgetting to redeem the rebate, they vastly underestimate the hassle of redeeming it by €20 per consumer. (JEL C93, D12, D83, D91, L81, M31)