Learning from Market Share when Consumers are Rationally Inattentive

We characterize the evolution of market share when agents freely observe past shares and also engage in costly private learning. We show that popular options may remain unchosen. Even among chosen goods, long run market shares skew toward ex ante popular items. This rationalizes market share policies that encourage experimentation. We show that an outside observer with rich data may be better able to understand preferences than are decision makers themselves. When learning costs are based on the reduction in Shannon entropy, a simple test reveals optimal choices by type. Hence preferences and learning costs may be separately identi…ed from suitably rich data. We thank Nobuhiro Kiyotaki, Juan Pablo Nicolini, Alessandro Pavan, Chris Tonetti, and Xavier Vives for helpful discussions.