A theory of discrete choice with information costs

• We present a theory based on information costs that supports deliberate stochastic choice.
• A unique experimental dataset is used to link errors to conscious disregard of information.
• We provide direct estimates of shape and size of information costs.
• A dynamic version of our theory predicts changes in consistency of responses.

We present a theory of discrete choice with information costs that supports deliberate stochastic choice. We use a unique experimental dataset to distinguish between errors arising from limitations on a decision maker's cognitive abilities and conscious disregard of information. Experimental evidence strongly favors the latter explanation. The data also allows us to directly estimate the shape and size of information costs for individual participants. Furthermore, in line with a dynamic extension of our theory, we find that accumulated knowledge of the environment improves response consistency.