Size Matters (and so Does Experience): How Personal Experience with a Fine Influences Behavior

Abstract

In this paper, we disentangle the effects of new information from the effects of personal experience to describe how personal experience changes behavior. We examine personal experience with one of the most ubiquitous managerial and policy tools: the monetary fine. We demonstrate that experience with a fine, controlling for the effect of learning new information, significantly boosts future compliance. We also show that experience with a large fine boosts compliance more than experience with a small fine, but that the influence of experience with both large and small fines decays sharply over time. We report longitudinal analyses of approximately 10,000 video-rental customers over a period of two years. We show that direct experience with a late fee significantly decreases the likelihood that customers will incur a late fee during their next rental. This is true even for renters who had incurred a late fee for a prior rental and had complete information about the late-fee policy. Our findings have broad implications for understanding how information and experience influence behavior over time.