Niraj Dawar [Archive.org URL]

No consumer can absorb, interpret, store, recall and use all of the information available, not even all the relevant bits. This imbalance between available information and available mental processing and storage capacity gives rise to a necessary principle of scarcity. Without it, there would be no need for firms to compete for awareness and privileged positions in the consumer’s mind.

A direct corollary of limited capacity is the principle of cognitive economy. Cognitive economy states that because their information processing capacity is finite, customers will often trade off accuracy of results and optimal outcomes for efficiency of information storage and processing. In other words, customers may end up choosing products that are easier to purchase rather than ones that are the best for their purposes, simply because they can’t remember everything about products, or so that they don’t have to think too much about them (because they have other things they’d rather be thinking about). This basic principle has many implications, including the mental shortcuts and mental organizing frameworks that consumers use to make sense of the marketplace.

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