Consumer Decision Making in the Information Age
- 330 Downloads
Providing people with more information and more options may seem as a good policy. However, because of limited attention and cognitive resources, people are not able to use all available information and freedom of choice effectively to achieve their own best interests. When cognitive resources and attention are depleted, decision making becomes shallow and intuitive, often unable to take important aspects of given situations into account – even though this information is readily available. An intuitive decision making may lead to suboptimal outcomes by overestimating the importance of the most salient cues and disregarding the less obvious future consequences. Although this creates a demand for decision making aides that could be satisfied by markets, policy regulation may be necessary in some areas. We provide specific examples of problems arising from limited attention together with solutions based on behavioral economics approach to policy making known as nudging.
KeywordsLimited attention Cognitive biases Information asymmetry Libertarian paternalism Nudging
JEL ClassificationD03 D82
- Brustein, J. 2013. The case for wearing productivity sensors on the job. Bloomberg Business. [online]. [cit. 2015-06-19]. Available: http://www.bloomberg.com/bw/articles/2013-12-19/sociometric-solutions-ben-waber-on-workers-wearing-sensors
- Célérier, C., & Vallée, B. 2014. The Motives for Financial Complexity: An Empirical Investigation. HBS working paper. Available: http://ibhf.cornell.edu/docs/Symposium%20Papers/FinancialComplexity.pdf
- Englmaier, F., Schmöller, A., & Stowasser, T. 2013. Price discontinuities in an online used Car market. EconStor working paper. Available: https://www.econstor.eu/handle/10419/79982
- Feldman, R., Fresko, M., Goldenberg, J., Netzer, O., & Ungar, L. 2007. Extracting product comparisons from discussion boards. In proceedings of the Seventh IEEE International Conference on Data Mining, ICDM, 469–474. doi: https://doi.org/10.1109/ICDM.2007.27
- Hossain, T., & Morgan, J. 2006….Plus shipping and handling: Revenue (non) equivalence in field experiments on eBay. The BE Journal of Economic Analysis & Policy, 5(2), 1–27. doi: https://doi.org/10.2202/1538-0637.1429
- Houdek, P. 2016. A perspective on consumers 3.0: They are not better decision-makers than previous generations. Frontiers in Psychology, 7(848). https://doi.org/10.3389/fpsyg.2016.00848.
- Ippisch, T. 2010. Telematics data in motor insurance: Creating value by understanding the impact of accidents on vehicle use. Doctoral dissertation, University of St. Gallen. Available: https://pdfs.semanticscholar.org/b473/33b8850808875a45970fe4ff133ee0e18681.pdf
- Kirzner, I. M. 1997. How markets work: Disequilibrium, entrepreneurship and discovery. London: Coronet Books Inc. ISBN: 978-0255364041Google Scholar
- Levin, D. T., Drivdahl, S. B., Momen, N., & Beck, M. R. 2002. False predictions about the detectability of visual changes: The role of beliefs about attention, memory, and the continuity of attended objects in causing change blindness blindness. Consciousness and Cognition, 11(4), 507–527. https://doi.org/10.1016/S1053-8100(02)00020-X.CrossRefGoogle Scholar
- Masum, H., Tovey, M., & Newmark, C. 2012. The reputation society: How online opinions are reshaping the offline world. Cambridge:MIT Press ISBN: 9780262016643.Google Scholar
- Milkman, K. L., Beshears, J., Choi, J. J., Laibson, D., & Madrian, B. C. 2012. Following through on good intentions: The power of planning prompts. Working paper no. w17995. NBER working paper. doi: https://doi.org/10.3386/w17995
- Nosko, C., & Tadelis, S. 2015. The limits of reputation in platform markets: An empirical analysis and field experiment. Working paper no. w20830. NBER working paper. doi: https://doi.org/10.3386/w20830
- Saeedi, M. 2014. Reputation and Adverse Selection, Theory and Evidence from eBay. Working paper no. 2102948. SSRN working paper. doi: https://doi.org/10.2139/ssrn.2102948
- Schwartz, B. 2005. The paradox of choice: Why more is less. New York: Harper Perennial.Google Scholar
- Tabarrok, A., & Cowen, T. 2018. The End of Asymmetric Information. Cato Unbound. [online]. [cit. 2015–06-19]. Available: http://www.cato-unbound.org/2015/04/06/alex-tabarrok-tyler-cowen/end-asymmetric-information.
- Trout, J. 2005. Differentiate or die. Forbes. [online]. [cit. 2015-06-19]. Available: http://www.forbes.com/2005/12/02/ibm-nordstrom-cocacola-cx_jt_1205trout.html.
- Vohs, K. D., Baumeister, R. F., Schmeichel, B. J., Twenge, J. M., Nelson, N. M., & Tice, D. M. 2008. Making choices impairs subsequent self-control: A limited-resource account of decision making, self-regulation, and active initiative. Journal of Personality and Social Psychology, 1(S), 883–898. https://doi.org/10.1037/0022-3518.104.22.1683.CrossRefGoogle Scholar
- Winston, C. 2007. Government failure versus market failure: Microeconomics policy research and government performance. Washington, DC:Brookings Institution Press ISBN: 9780815793915.Google Scholar
- Wright, J. D. 2007. Behavioral law and economics, paternalism, and consumer contracts: An empirical perspective. NYU Journal of Law & Liberty, 2(3), 470–511. Available at SSRN: https://ssrn.com/abstract=1015899
- Zervas, G., Proserpio, D., & Byers, J. W. 2015. The impact of the sharing economy on the hotel industry: Evidence from Airbnb’s entry into the Texas market. In proceedings of the Sixteenth ACM Conference on Economics and Computation, ACM. 637–637. ISBN: 978-1-4503-3410-5Google Scholar