NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Rational Inattention, Competitive Supply, and Psychometrics

Andrew Caplin, Dániel Csaba, John Leahy, Oded Nov

NBER Working Paper No. 25224
Issued in November 2018
NBER Program(s):Technical Working Papers

Costs of attention, while central to choice behavior, have proven hard to measure. We introduce a simple method of recovering them from choice data. Our recovery method rests on the observation that costs of attention play precisely the same role in consumer choice as do a competitive firm's costs of production in its supply decision. This analogy extends to welfare analysis: consumer welfare net of attention costs is measured in precisely the same way as the profits of a competitive firm. We implement our recovery method in a purpose-built experiment. We quantitatively assess the trade-off between reward level and task complexity. Estimated attention costs are highly correlated with decision time, an important common input in process-based models of attention.

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Document Object Identifier (DOI): 10.3386/w25224

 
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