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A Model of Focusing in Economic Choice


  • Adam Szeidl


  • Botond Koszegi



We 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.

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  • Adam Szeidl & Botond Koszegi, 2011. "A Model of Focusing in Economic Choice," 2011 Meeting Papers 1441, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:1441

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    References listed on IDEAS

    1. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2007. "The Age of Reason: Financial Decisions Over the Lifecycle," NBER Working Papers 13191, National Bureau of Economic Research, Inc.
    2. David Laibson & Andrea Repetto & Jeremy Tobacman, 2005. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Levine's Bibliography 784828000000000643, UCLA Department of Economics.
    3. Xavier Gabaix & David Laibson & Guillermo Moloche & Stephen Weinberg, 2006. "Costly Information Acquisition: Experimental Analysis of a Boundedly Rational Model," American Economic Review, American Economic Association, vol. 96(4), pages 1043-1068, September.
    4. Douglas Bernheim & Antonio Rangel, 2007. "Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics," Discussion Papers 07-031, Stanford Institute for Economic Policy Research.
    5. Asheim, Geir B., 2007. "Procrastination, partial naivete, and behavioral welfare analysis," Memorandum 02/2007, Oslo University, Department of Economics.
    6. Kfir Eliaz & Michael Richter & Ariel Rubinstein, 2011. "Choosing the two finalists," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(2), pages 211-219, February.
    7. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
    8. Damon Jones, 2012. "Inertia and Overwithholding: Explaining the Prevalence of Income Tax Refunds," American Economic Journal: Economic Policy, American Economic Association, vol. 4(1), pages 158-185, February.
    9. Jannett Highfill & Douglas Thorson & William V. Weber, 1998. "Tax Overwithholding as a Response To Uncertainty," Public Finance Review, , vol. 26(4), pages 376-391, July.
    10. Sumit Agarwal & John C Driscoll & Xavier Gabaix & David Laibson, 2008. "Learning in the Credit Card Market," Levine's Working Paper Archive 122247000000002028, David K. Levine.
    11. Hauser, John R & Wernerfelt, Birger, 1990. " An Evaluation Cost Model of Consideration Sets," Journal of Consumer Research, Oxford University Press, vol. 16(4), pages 393-408, March.
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    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making


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