Limited Consideration Sets and Financial Decision-Making

Economic models of financial decision-making typically assume that investors evaluate all available assets when forming their portfolios. Yet a growing body of work in psychology and behavioral economics suggests that attention is a scarce cognitive resource and that individuals rarely consider the full menu of available options. This paper provides the first large-scale evidence on how limited attention shapes portfolio choice by using unique, high-frequency data on investors’ actual consideration sets. Our proprietary dataset from a major Chinese financial platform records every asset page viewed by more than 13,000 retail investors, allowing us to directly observe which funds they attend to prior to trading. We complement these observational data with a controlled online experiment that exogenously directs attention. Across both settings, we find that (i) investors consider only a small subset of available options, and (ii) conditional on the assets they actually consider, their choices are substantially better than standard analyses suggest. Comparing chosen assets to the full universe reproduces the canonical finding that retail investors underperform. But comparing chosen assets to the investor’s consideration set reverses this conclusion: investors systematically pick the better-performing assets within the set they attend to. Our results show that mismeasured opportunity sets lead to overstated investor biases and that attention constraints play a central—and previously unmeasured—role in financial decision-making.