Consumer Rational (In)Attention to Favorable and Unfavorable Product Information,and Firm Information Design

Abstract

The authors study how a consumer optimally allocates attention to favorable and unfavorable product-related information before making the purchase decision, when information processing is costly. They find that attention allocation depends on, among other factors, the consumer’s prior belief about whether the product matches their needs and their unit information processing cost. A consumer processes both “confirmatory” and “disconfirmatory” information to their prior belief, but to different degrees under different conditions. In general, if the consumer has an extreme prior, or if the unit cost of processing information is high such that only a small amount of information is optimally processed, they process more confirmatory than disconfirmatory information; this offers a rational explanation for the phenomenon known as “confirmation bias.” The authors also find that a seller can benefit by influencing the consumer’s attention allocation by strategically choosing how much favorable and unfavorable information to make available for the consumer to process and by influencing the information processing cost, where the optimal strategy depends on the seller’s ability to adjust product price. Surprisingly, a seller has a lower incentive to suppress unfavorable information when the consumer has a worse prior belief about product fit. The authors illustrate their model with an application to information provision in product reviews.