Sparking Curiosity or Tipping the Scales? Targeted Advertising to Rationally Inattentive Consumers

36 Pages Posted: 30 Jun 2021 Last revised: 15 Sep 2021

See all articles by Andrei Matveenko

Andrei Matveenko

University of Copenhagen - Department of Economics

Egor Starkov

University of Copenhagen - Department of Economics

Date Written: September 15, 2021

Abstract

This paper argues, in the context of targeted advertising, that receivers' rational inattention and ability to independently acquire information have a non-trivial impact on the sender's optimal disclosure strategy. In our model, a monopolist has an opportunity to launch an advertising campaign and chooses a targeting strategy -- which consumers to send its advertisement to. The consumers are uncertain about and heterogeneous in their valuations of the product, and are rationally inattentive in that they must incur a cost if they want to learn their true valuations. We discover that the firm generally prefers to target consumers who are either indifferent between ignoring and investigating the product, or between investigating and buying it unconditionally. If the firm is uncertain about the consumer appeal of its product, it targets these two distinct groups of consumers simultaneously but may ignore all consumers in between.

Keywords: advertising, targeting, rational inattention, costly disclosure

JEL Classification: D83, L15, M37

Suggested Citation

Matveenko, Andrei and Starkov, Egor, Sparking Curiosity or Tipping the Scales? Targeted Advertising to Rationally Inattentive Consumers (September 15, 2021). Available at SSRN: https://ssrn.com/abstract=3869568 or http://dx.doi.org/10.2139/ssrn.3869568

Andrei Matveenko (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

Egor Starkov

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

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