The Econometric SocietyEdited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262
Econometrica: May, 2024, Volume 92, Issue 3
https://doi.org/10.3982/ECTA18555
p. 881-911
Zach Y. Brown, Jihye Jeon
In markets with complicated products, individuals may choose how much time and effort to spend understanding and comparing alternatives. Focusing on insurance choice, we find evidence consistent with individuals acquiring more information when there are larger consequences from making an uninformed choice. Building on the rational inattention literature, we develop and estimate a parsimonious demand model in which individuals choose how much to research difficult‐to‐observe characteristics. We use our estimates to evaluate policies that simplify choice. Reducing the number of plans can raise welfare through improved choice as well as savings in information costs. Capping out‐of‐pocket costs generates larger welfare gains than standard models. The empirical model can be applied to other settings to examine the regulation of complex products.
Zach Y. Brown and Jihye Jeon
This online appendix contains material not found within the manuscript.
Zach Y. Brown and Jihye Jeon
The replication package for this paper is available at https://doi.org/10.5281/zenodo.10037528. The authors were granted an exemption to publish their data because either access to the data is restricted or the authors do not have the right to republish them. However, the authors included in the package a simulated or synthetic dataset that allows running their codes. The Journal checked the synthetic/simulated data and the codes for their ability to generate all tables and figures in the paper and approved online appendices. However, the synthetic/simulated data are not designed to reproduce the same results.
