Pantelis Karapanagiotis, EBS

"Dynamic Choice with Volitional Attention: Experience and Endogenous Narrow Framing"

Abstract

Previous research on the allocation of attention of cognitively constrained individuals has primarily focused on the filtering aspects of their decision processes, according to which the attentional intensity is consciously elected. Human attention, however, is not merely of voluntary intensity; it is rather also of volitional placement nature. This article proposes a framework that takes into account such volitional elements of attention and is consistent with the dynamic behavior of individuals who prefer to maintain the status quo of their consideration context when making decisions. A consumer search application using US store and scanner data indicates that decision framing costs in retail markets are state-dependent and non-linear. Costs are found not to exclusively depend on the cardinality of consideration sets but also experience and attentional associations between considered items. Thereby, neglecting these aspects leads to potential misidentification of product-preferences. The results of this article give an endogenous explanation of narrow framing and home bias phenomena in consumption and investment choice.

Contact person: Anders Munk Nielsen