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Endogenous attention to costs

  • Linda ThunströmEmail author
  • Chian Jones Ritten
Article

Abstract

Studies show that consumers are often unaware of the price of their purchases. We examine whether such ignorance may be willful. We develop a model entailing consumers who may feel conflicted about spending—some people have an inherent preference for overspending (“spendthrifts”). We show that if overspending causes regret, spendthrifts are better off in the short-term from ignoring costs to their consumption (i.e., prices), when ignorance reduces anticipated regret. In the long-term, ignorance of costs may, however, be harmful, since it acts to exacerbate spendthrifts’ overconsumption. Further, our model shows that consumers who are unconflicted about their spending, or have an inherent preference to underspend (“tightwads”), do not benefit from ignoring costs to their consumption in the short-term. We test the implications of our model against two datasets—a field dataset from a supermarket and data from a websurvey entailing a hypothetical experiment. We find support for our model implications that spendthrifts pay less attention to prices, and that their inattention may be endogenous (i.e., willful or strategic). Our results may help explain previous puzzling findings of low consumer price knowledge. Further, our finding that all consumer groups addressed herein have long-term benefits from price saliency provides support for policies that ensure prices are transparent and salient to consumers.

Keywords

Strategic ignorance Willful ignorance Price inattention Price transparency Price saliency Spendthrifts Tightwads Pain of paying 

JEL Classifications

D11 D12 D81 D83 D91 

Notes

Acknowledgments

We thank Hunter Bruce for excellent research assistance. The collection of data from human subjects for this study has been approved by the IRB at University of Wyoming.

Supplementary material

11166_2019_9308_MOESM1_ESM.docx (74 kb)
ESM 1 (DOCX 73 kb)

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of WyomingLaramieUSA
  2. 2.Department of Agricultural and Applied EconomicsUniversity of WyomingLaramieUSA

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