The Allocation of Attention: Theory and Evidence
New York University - Stern School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)
Stephen Ernest Weinberg
August 29, 2003
MIT Department of Economics Working Paper No. 03-31
A host of recent studies show that attention allocation has important economic consequences. This paper reports the first empirical test of a cost-benefit model of the endogenous allocation of attention. The model assumes that economic agents have finite mental processing speeds and cannot analyze all of the elements in complex problems. The model makes tractable predictions about attention allocation, despite the high level of complexity in our environment. The model successfully predicts the key empirical regularities of attention allocation measured in a choice experiment. In the experiment, decision time is a scarce resource and attention allocation is continuously measured using Mouselab. Subject choices correspond well to the quantitative predictions of the model, which are derived from cost-benefit and option-value principles.
Number of Pages in PDF File: 45
Keywords: attention, satisficing, Mouselab, bounded rationality, behavioral economics, experimental economics, cognitive modeling
JEL Classification: C7, C9, D8
Date posted: September 16, 2003
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