What do Consumers Consider Before They Choose? Identification from Asymmetric Demand Responses*

Jason Abaluck and Abi Adams-Prassl

The Quarterly Journal of Economics, 2021, vol. 136, issue 3, 1611-1663

Abstract: Consideration set models generalize discrete-choice models by relaxing the assumption that consumers consider all available options. Determining which options were considered has previously required either survey data or restrictions on how attributes affect consideration or utility. We provide an alternative route. In full-consideration models, choice probabilities satisfy a symmetry property analogous to Slutsky symmetry in continuous-choice models. This symmetry breaks down in consideration set models when changes in characteristics perturb consideration. We show that consideration probabilities are constructively identified from the resulting asymmetries. We validate our approach in a lab experiment where consideration sets are known and then apply our framework to study a “smart default” policy in Medicare Part D, wherein consumers are automatically reassigned to lower-cost prescription drug plans with the option of opting out. Full-consideration models imply that such a policy will be ineffective because consumers will opt out to avoid switching costs. Allowing for inattention, we find that defaulting all consumers to lower-cost options produces negligible welfare benefits on average, but defaulting only consumers who would save at least $300 produces large benefits.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://hdl.handle.net/10.1093/qje/qjab008 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:136:y:2021:i:3:p:1611-1663.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().