Discrete choice in marketing through the lens of rational inattention

Abstract 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 discuss strategies how to apply rational inattention theory—which explains a large variety of such departures—to the analysis of discrete choice among multiple alternatives described along multiple attributes. We first review existing applications that make restrictive belief assumptions to obtain choice probabilities in closed multinomial logit form. We then propose a model that allows for general consumer beliefs and demonstrate its empirical identification. Further, we illustrate how this model naturally motivates stylized empirical results that are hard to reconcile from a random utility perspective.