Rational Inattention in Games: Experimental Evidence

18 Pages Posted: 16 Oct 2015 Last revised: 28 Aug 2016

Date Written: August 8, 2016

Abstract

In this paper, I test the predictions of rational inattention theory using a laboratory experiment where one role in a two-player game faces cognitive costs to process information about a payoff-relevant state. I find that subjects who face these unobservable cognitive costs have state-dependent choices and action-dependent response times that are consistent with being rationally inattentive, which provides evidence that subjects can adjust their cognitive processes in line with strategic incentives. In addition, I find that the estimated marginal costs of attention are similar when directly measured from the actions of players who face attentional costs and when indirectly measured from the actions of players who strategically interact with these players, which suggests that subjects who face unobservable cognitive costs are also treated as if they are rationally inattentive by other players.

Keywords: Rational inattention, limited attention, cognitive costs, strategic pricing, asymmetric information

JEL Classification: D82, D83, C90

Suggested Citation

Martin, Daniel, Rational Inattention in Games: Experimental Evidence (August 8, 2016). Available at SSRN: https://ssrn.com/abstract=2674224 or http://dx.doi.org/10.2139/ssrn.2674224

Daniel Martin (Contact Author)

Northwestern University - Department of Managerial Economics and Decision Sciences (MEDS) ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
444
Abstract Views
4,118
Rank
123,768
PlumX Metrics