Consumer Choice Under Limited Attention When Alternatives Have Different Information Costs

Abstract

Consumers often do not have complete information about the choices they face and, therefore, have to spend time and effort acquiring information. Because information acquisition is costly, consumers trade off the value of better information against its cost and make their final product choices based on imperfect information. We model this decision using the rational inattention approach and describe the rationally inattentive consumer’s choice behavior when the consumer faces alternatives with different information costs. To this end, we introduce an information cost function that distinguishes between direct and implied information. We then analytically characterize the optimal choice proba..