Optimal Search and Awareness Expansion
CentER Discussion Paper No. 2019-034
35 Pages Posted: 5 Dec 2019
Date Written: November 18, 2019
This paper introduces a search problem where a consumer has to first become aware of an alternative, before being able to search it. Initially, the consumer is aware of only a few alternatives. During search, the consumer sequentially decides between searching alternatives he is already aware of and expanding awareness to discover more products. I show that the optimal policy for this search problem is fully characterized by simple reservation values. Moreover, I prove that the purchase outcome of a consumer optimally solving the search problem is equivalent to the consumer simply choosing the product offering the largest value on a predetermined index.
Keywords: Sequential search, Limited awareness, Information acquisition
JEL Classification: D83
Suggested Citation: Suggested Citation