Rational inattention or rational overreaction? Consumer reactions to health news

We investigate differences in how consumers of fish react to media information about long term health effects of eating fish. We specify a dynamic empirical model that allows for heterogeneity in all basic parameters of consumer behavior as well as in how consumers react to information. We estimate the model using a unique household panel tracking consumption, prices, news stories and media habits over 24 quarters. Prior studies find/suggest that the consumers most likely to be rationally ignorant of long term health effects are inattentive to health news. In contrast we find that these consumers react more dramatically to health news than the consumers who most likely are well informed.