Consumer Attention to Favorable and Unfavorable Product Information, and Firm Information Design

Abstract

We study how a consumer optimally allocates attention to favorable and unfavorable information related to a product before purchasing it, when information processing is costly. We find that attention allocation depends on the consumer’s prior belief about whether the product matches her needs or not, and on her unit information processing cost. A consumer processes both “confirmatory” and “disconfirmatory” information to her prior belief, but to different degrees under different conditions. Generally speaking, 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, she processes more confirmatory than disconfirmatory information; this offers a rational explanation for the phenomenon known as “confirmation bias.” The consumer’s purchase likelihood increases with her prior belief on product fit but may vary in a non-monotonic fashion with her information processing cost. We 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 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. We illustrate our model with an application to information provision in product reviews.