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Abstract

The standard revealed preference argument relies on an implicit assumption that a decision maker considers all feasible alternatives. The marketing and psychology literatures, however, provide well-established evidence that consumers do not consider all brands in a given market before making a purchase (Limited Attention). In this paper, we illustrate how one can deduce both the decision maker's preference and the alternatives to which she pays attention and inattention from the observed behavior. We illustrate how seemingly compelling welfare judgments without specifying the underlying choice procedure are misleading. Further, we provide a choice theoretical foundation for maximizing a single preference relation under limited attention. (JEL D11, D81)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.5.2183
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 5 (August)
Pages: 2183-2205

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:5:p:2183-2205

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Find related papers by JEL classification:

• D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
• D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

References

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