On the Formal Theory of Inspection and Evaluation in Product Markets

This paper builds a formal theory of consumer behavior under imperfect information when goods are described by multiple characteristics which vary in their degree of "observability." An optimal strategy for the consumer is shown to exist. In general, this strategy is shown to involve both inspection (sampling to observe general characteristics of goods) and evaluation (consumption of goods to observe specific characteristics). Comparative statics of the optimal strategy are also analyzed.