From Intentions to Actions: A Model and Experimental Evidence of Inattentive Choice
Abstract: A growing body of evidence suggests that people's inattention may be a signi ficant friction in domains of behavior ranging from medical compliance, to financial decisions, to residential energy use. In this paper, I present a psychologically grounded model of inattentive choice and investigate its implications for dynamic decisions. The model explains seemingly puzzling patterns of consumer behavior, makes novel predictions that I con rm in two experiments, and generates a rich set of market implications. Applied to repeated actions, the model provides an attention-based foundation for the formation of "good" habits in domains such as exercise or energy use. The model explains the recent evidence on the intertemporal spillover effects of temporary incentives, and makes testable predictions about when attention-focusing cues, such as reminders, will dampen or amplify the effects of incentives. Consistent with these predictions, the first experiment reported in this paper shows that while temporary interruptions to daily routines decrease subsequent performance of the behavior, reminders have the largest impact after an interruption. Applied to tasks that must be completed by a deadline, the model identifies when longer deadlines will make people less likely to complete a task. But additionally, the model leads to new comparative statics, tested in the second experiment reported in this paper, about how reminders can eliminate the potentially perverse effect of longer deadlines. Finally, I apply the model to study market interactions between sophisticated firms and inattentive consumers: the model predicts how firms will take advantage of consumer's inattention through sales strategies such as rebates, and also leads to a dynamic theory of how firms use reminder advertisements to steer the behavior of inattentive consumers.