The Irrelevance of Information Overload: An Analysis of Search and Disclosure

Abstract

This paper deals with a small part of a large subject. The subject is market failure as a result of imperfect information. Broadly speaking, such market failure can occur in two ways: as a result of problems that exist "in the world" and as a result of problems that exist in consumers' heads. Respecting the former source of failure, consumers may process information perfectly but acquire too little information to permit optimal choices. This could occur because (a) information is a public good; consequently, firms may supply insufficient information about their products or contracts to enable consumers to choose optimally; (b) consumers may observe the offerings of too few firms to make an optimal choice among products because consumers correctly perceive the costs of making interfirm comparisons to be too high in relation to the gains; or (c) consumers may not observe relevant attributes of particular products or contracts if the observation of them requires special skills, the acquiring of which is not worth the investment.