A Model of Focusing in Economic Choice
AbstractWe present a theory of individual choice in which the decisionmaker focuses more on, and hence weights more heavily, attributes on which the options in her consideration set are more different. Consistent with evidence on salience in monetary choices, our model predicts that the decisionmaker is biased toward options whose advantages are concentrated in fewer attributes. In intertemporal choice, because a single period's choice can lead to a different concentration of consequences than a lifetime perspective that integrates many choices, the model often predicts time inconsistency in behavior. The decisionmaker exhibits present bias in ``lifestyle'' decisions whose consequences are distributed over many future dates, but also overcommits to an increasing number of future goals with a single large benefit each. In response to the bias toward concentration, profit-maximizing firms design products with one core attribute, and split prices into as many pieces as they can. A strong firm designs products which are strong on its competitor's weak attribute, while a weak firm copies the strong firm's strength. We also propose a theory of consideration-set determination in which the agent considers the set of options that maximizes a combination of utility and differences between attributes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1441.
Date of creation: 2011
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Other versions of this item:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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.:
- Douglas Bernheim & Antonio Rangel, 2007.
"Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics,"
07-031, Stanford Institute for Economic Policy Research.
- B. Douglas Bernheim & Antonio Rangel, 2008. "Beyond Revealed Preference: Choice Theoretic Foundations for Behavioral Welfare Economics," NBER Working Papers 13737, National Bureau of Economic Research, Inc.
- Matthew Rabin & Georg Weizsacker, 2009.
"Narrow Bracketing and Dominated Choices,"
American Economic Review,
American Economic Association, vol. 99(4), pages 1508-43, September.
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, .
"Salience Theory of Choice Under Risk,"
29210, Harvard University OpenScholar.
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2010. "Salience Theory of Choice Under Risk," NBER Working Papers 16387, National Bureau of Economic Research, Inc.
- Andrei Shleifer & Nicola Gennaioli & Pedro Bordalo, 2011. "Salience theory of choice under risk," 2011 Meeting Papers 1442, Society for Economic Dynamics.
- Raj Chetty & Adam Looney & Kory Kroft, 2007.
"Salience and Taxation: Theory and Evidence,"
NBER Working Papers
13330, National Bureau of Economic Research, Inc.
- Victor Stango & Jonathan Zinman, 2009. "What Do Consumers Really Pay on Their Checking and Credit Card Accounts? Explicit, Implicit, and Avoidable Costs," American Economic Review, American Economic Association, vol. 99(2), pages 424-29, May.
- Kfir Eliaz & Michael Richter & Ariel Rubinstein, 2011. "Choosing the two finalists," Economic Theory, Springer, vol. 46(2), pages 211-219, February.
- Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2008.
"Learning in the Credit Card Market,"
NBER Working Papers
13822, National Bureau of Economic Research, Inc.
- Asheim, Geir B., 2007. "Procrastination, partial naivete, and behavioral welfare analysis," Memorandum 02/2007, Oslo University, Department of Economics.
- Xavier Gabaix & David Laibson & Guillermo Moloche & Stephen Weinberg, 2005. "Information Acquisition: Experimental Analysis of a Boundedly Rational Model," Levine's Bibliography 666156000000000480, UCLA Department of Economics.
- Daniel Kahneman & Alan B. Krueger & David Schkade & Norbert Schwarz & Arthur A. Stone, 2006. "Would You Be Happier If You Were Richer? A Focusing Illusion," Working Papers 77, Princeton University, Department of Economics, Center for Economic Policy Studies..
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012.
"Salience and Consumer Choice,"
463, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, . "Salience and Consumer Choice," Working Paper 62321, Harvard University OpenScholar.
- Pedro Bordado & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience and Consumer Choice," Working Papers 501, Barcelona Graduate School of Economics.
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2010. "Salience and consumer choice," Economics Working Papers 1252, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2012.
- Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience and Consumer Choice," NBER Working Papers 17947, National Bureau of Economic Research, Inc.
- Fels, Markus, 2013. "Limited Attention and the Demand for Health Insurance," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80485, Verein für Socialpolitik / German Economic Association.
- Rema Hanna & Sendhil Mullainathan & Joshua Schwartzstein, 2012.
"Learning Through Noticing: Theory and Experimental Evidence in Farming,"
NBER Working Papers
18401, National Bureau of Economic Research, Inc.
- Hanna, Rema & Mullainathan, Sendhil & Schwartzstein, Joshua, 2012. "Learning through Noticing: Theory and Experimental Evidence in Farming," Working Paper Series rwp12-044, Harvard University, John F. Kennedy School of Government.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.