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.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
Amblee, N., & Bui, T. 2011. Harnessing the influence of social proof in online shopping: The effect of electronic word of mouth on sales of digital microproducts. International Journal of Electronic Commerce, 16(2), 91–114. https://doi.org/10.2753/JEC1086-4415160205.
Ariely, D., Loewenstein, G., & Prelec, D. 2003. “Coherent arbitrariness”: Stable demand curves without stable preferences. The Quarterly Journal of Economics, 118(1), 73–106. https://doi.org/10.1162/00335530360535153.
Baumeister, R. F., Bratslavsky, E., Muraven, M., & Tice, D. M. 1998. Ego depletion: Is the active self a limited resource? Journal of Personality and Social Psychology, 74(5), 1252–1265. https://doi.org/10.1037/0022-35188.8.131.522.
Bordalo, P., Gennaioli, N., & Shleifer, A. 2013. Salience and consumer choice. Journal of Political Economy, 121(5), 803–843. https://doi.org/10.1086/673885.
Brown, J., Hossain, T., & Morgan, J. 2010. Shrouded attributes and information suppression: Evidence from the field. The Quarterly Journal of Economics, 125(2), 859–876. https://doi.org/10.1162/qjec.2010.125.2.859.
Browne, M. J., & Hoyt, R. E. 2000. The demand for flood insurance: Empirical evidence. Journal of Risk and Uncertainty, 20(3), 291–306. https://doi.org/10.1023/A:1007823631497.
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
Campbell, J. Y., Jackson, H. E., Madrian, B. C., & Tufano, P. 2011. Consumer financial protection. Journal of Economic Perspectives, 25(1), 91–114. https://doi.org/10.1257/jep.25.1.91.
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
Chetty, R., Looney, A., & Kroft, K. 2009. Salience and taxation: Theory and evidence. American Economic Review, 99(4), 1145–1177. https://doi.org/10.1257/aer.99.4.1145.
Davidai, S., Gilovich, T., & Ross, L. D. 2012. The meaning of default options for potential organ donors. Proceedings of the National Academy of Sciences, 109(38), 15201–15205. https://doi.org/10.1073/pnas.1211695109.
Dellarocas, C. 2003. The digitization of word of mouth: Promise and challenges of online feedback mechanisms. Management Science, 49(10), 1407–1424. https://doi.org/10.1287/mnsc.49.10.1407.17308.
Dellavigna, S. 2009. Psychology and economics: Evidence from the field. Journal of Economic Literature, 47(2), 315–372. https://doi.org/10.1257/jel.47.2.315.
Demsetz, H. 1969. Information and Efficiency: Another Viewpoint. The Journal of Law and Economics, 12(1), 1–22. https://doi.org/10.1086/466657.
Dewan, S., & Hsu, V. 2004. Adverse selection in electronic markets: Evidence from online stamp auctions. The Journal of Industrial Economics, 52(4), 497–516. https://doi.org/10.1111/j.0022-1821.2004.00237.x.
Drew, T., Vo, M. L. H., & Wolfe, J. M. 2013. The invisible gorilla strikes again sustained inattentional blindness in expert observers. Psychological Science, 24(9), 1848–1853. https://doi.org/10.1177/0956797613479386.
Drexler, A., Fischer, G., & Schoar, A. 2014. Keeping it simple: Financial literacy and rules of thumb. American Economic Journal: Applied Economics, 6(2), 1–31. https://doi.org/10.1257/app.6.2.1.
Elbel, B., Kersh, R., Brescoll, V. L., & Dixon, L. B. 2009. Calorie labeling and food choices: A first look at the effects on low-income people in New York City. Health Affairs, 28(6), w1110–w1121. https://doi.org/10.1377/hlthaff.28.6.w1110.
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
Finkelstein, E. A., Strombotne, K. L., Chan, N. L., & Krieger, J. 2011. Mandatory menu labeling in one fast-food chain in King County, Washington. American Journal of Preventive Medicine, 40(2), 122–127. https://doi.org/10.1016/j.amepre.2010.10.019.
Gabaix, X., & Laibson, D. 2006. Shrouded attributes, consumer myopia, and information suppression in competitive markets. Quarterly Journal of Economics, 121(2), 505–540. https://doi.org/10.1162/qjec.2006.121.2.505.
Goldin, J., & Homonoff, T. 2013. Smoke gets in your eyes: Cigarette tax salience and Regressivity. American Economic Journal: Economic Policy, 5(1), 302–336. https://doi.org/10.1257/pol.5.1.302.
Hagger, M. S., Chatzisarantis, N. L., Alberts, H., Anggono, C. O., Batailler, C., Birt, A. R., et al. 2016. A multilab preregistered replication of the ego-depletion effect. Perspectives on Psychological Science, 11(4), 546–573. https://doi.org/10.1177/1745691616652873.
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.
Houdek, P., & Koblovský, P. 2015. Where is my money? New findings in fiscal psychology. Society, 52(2), 155–158. https://doi.org/10.1007/s12115-015-9873-7.
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
Iyengar, S. S., & Lepper, M. R. 2000. When choice is demotivating: Can one desire too much of a good thing? Journal of Personality and Social Psychology, 79(6), 995–1006. https://doi.org/10.1037/0022-35184.108.40.2065.
Kirzner, I. M. 1997. How markets work: Disequilibrium, entrepreneurship and discovery. London: Coronet Books Inc. ISBN: 978-0255364041
Lacetera, N., Pope, D. G., & Sydnor, J. R. 2012. Heuristic thinking and limited attention in the Car market. American Economic Review, 102(5), 2206–2236. https://doi.org/10.1257/aer.102.5.2206.
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.
Lewis, G. 2011. Asymmetric information, adverse selection and online disclosure: The case of eBay motors. The American Economic Review, 101(4), 1535–1546. https://doi.org/10.1257/aer.101.4.1535.
Liu, P. J., Wisdom, J., Roberto, C. A., Liu, L. J., & Ubel, P. A. 2014. Using behavioral economics to design more effective food policies to address obesity. Applied Economic Perspectives and Policy, 36(1), 6–24. https://doi.org/10.1093/aepp/ppt027.
Masum, H., Tovey, M., & Newmark, C. 2012. The reputation society: How online opinions are reshaping the offline world. Cambridge:MIT Press ISBN: 9780262016643.
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
Pocheptsova, A., Amir, O., Dhar, R., & Baumeister, R. F. 2009. Deciding without resources: Resource depletion and choice in context. Journal of Marketing Research, 46(3), 344–355. https://doi.org/10.1509/jmkr.46.3.344.
Resnick, P., Zeckhauser, R., Swanson, J., & Lockwood, K. 2006. The value of reputation on eBay: A controlled experiment. Experimental Economics, 9(2), 79–101. https://doi.org/10.1007/s10683-006-4309-2.
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
Scheibehenne, B., Greifeneder, R., & Todd, P. M. 2010. Can there ever be too many options? A meta-analytic review of choice overload. Journal of Consumer Research, 37(3), 409–425. https://doi.org/10.1086/651235.
Schwartz, B. 2005. The paradox of choice: Why more is less. New York: Harper Perennial.
Sexton, S. 2014. Automatic bill payment and salience effects: Evidence from electricity consumption. The Review of Economics and Statistics, 97(2), 229–241. https://doi.org/10.1162/REST_a_00465.
Shah, A. K., Mullainathan, S., & Shafir, E. 2012. Some consequences of having too little. Science, 338(6107), 682–685. https://doi.org/10.1126/science.1222426.
Simmons-Mosley, T. X., & Malpezzi, S. 2006. Household mobility in New York City’s regulated rental housing market. Journal of Housing Economics, 15(1), 38–62. https://doi.org/10.1016/j.jhe.2005.09.004.
Simons, D. J., & Levin, D. T. 1998. Failure to detect changes to people in a real-world interaction. Psychonomic Bulletin and Review, 5(4), 644–649. https://doi.org/10.3758/BF03208840.
Stango, V., & Zinman, J. 2009. What do consumers really pay on their checking and credit card accounts? Explicit, implicit, and avoidable costs. The American Economic Review, 99(2), 424–429. https://doi.org/10.1257/aer.99.2.424.
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.
Thaler, R. H., & Benartzi, S. 2004. Save more tomorrow™: Using behavioral economics to increase employee saving. Journal of Political Economy, 112(1), 164–187. https://doi.org/10.1086/380085.
Thaler, R. H., & Sunstein, C. R. 2003. Libertarian paternalism. The American Economic Review, 93(2), 175–179. https://doi.org/10.1257/000282803321947001.
Thaler, R. H., & Sunstein, C. R. 2008. Nudge: Improving decisions about health, wealth, and happiness. Constitutional Political Economy, 19(4), 356–360. https://doi.org/10.1007/s10602-008-9056-2.
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/10.1037/0022-35220.127.116.113.
Winston, C. 2007. Government failure versus market failure: Microeconomics policy research and government performance. Washington, DC:Brookings Institution Press ISBN: 9780815793915.
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: 978-1-4503-3410-5
Zlatev, J. J., Daniels, D. P., Kim, H., & Neale, M. A. 2017. Default neglect in attempts at social influence. Proceedings of the National Academy of Sciences, 114(52), 13643–13648. https://doi.org/10.1073/pnas.1712757114.
About this article
Cite this article
Houdek, P., Koblovský, P., Šťastný, D. et al. Consumer Decision Making in the Information Age. Soc 55, 422–429 (2018). https://doi.org/10.1007/s12115-018-0283-5
- Limited attention
- Cognitive biases
- Information asymmetry
- Libertarian paternalism