New York University
19 West 4th Street
New York, NY 10003
Institutional Affiliation: New York University
NBER Working Papers and Publications
|November 2018||Rational Inattention, Competitive Supply, and Psychometrics|
with Andrew Caplin, John Leahy, Oded Nov: w25224
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.