Limited Attention and Choice
AbstractThis paper analyzes a boundedly rational decision maker who is uncertain about his preference and faces the following trade-off: adding a good to the choice set has a positive option value but increases the complexity of the choice problem. The increased complexity is modeled as a reduction of the information available for each good. Because of this trade-off there is an optimal number of goods that the decision maker wants to analyze before making his final choice. The choice of the optimal set can be interpreted as the choice among stores. Stores maximize profits and choose a quality, an assortment, and a price. A lower cost of providing quality implies higher price and higher quality. Assortment will be small for very high levels of quality. Better quality of information implies greater variety and higher price. Greater variety combined with good consumer service can be a signal for high quality of the store.
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Bibliographic InfoPaper provided by Banco de México in its series Working Papers with number 2010-02.
Date of creation: Mar 2010
Date of revision:
Decision making; Bounded rationality; Choice set; Stores; Quality.;
Find related papers by JEL classification:
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-28 (All new papers)
- NEP-CBE-2010-03-28 (Cognitive & Behavioural Economics)
- NEP-DCM-2010-03-28 (Discrete Choice Models)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gabaix, Xavier & Laibson, David Isaac & Moloche, Guillermo & Stephen, Weinberg, 2003. "The allocation of attention: theory and evidence," MPRA Paper 47339, University Library of Munich, Germany.
- Hauser, John R & Wernerfelt, Birger, 1990. " An Evaluation Cost Model of Consideration Sets," Journal of Consumer Research, University of Chicago Press, vol. 16(4), pages 393-408, March.
- Jacoby, Jacob & Speller, Donald E & Berning, Carol A Kohn, 1974. " Brand Choice Behavior as a Function of Information Load: Replication and Extension," Journal of Consumer Research, University of Chicago Press, vol. 1(1), pages 33-42, June.
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