Discrete Choice in Marketing through the Lens of Rational Inattention

Models derived from random utility theory represent the workhorse methods to learn about consumer preferences from discrete choice data. However, a large body of literature documents various behavioral patterns that cannot be captured by basic random utility models and require different non-unified adjustments to accommodate these patterns. In this article, we propose an empirical rational inattention model for the analysis of discrete choice among multiple alternatives described along multiple attributes, as encountered in prototypical discrete choice experiments and choice-based-conjoint analysis in marketing and economics. We demonstrate empirical identification of the proposed model. Further, we illustrate how it naturally motivates stylized empirical results that are hard to reconcile from a random utility perspective, while contrasting it to extant approaches such as consumer search