Attention and Selection Effects
92 Pages Posted: 17 Apr 2018 Last revised: 20 Dec 2018
Date Written: April 1, 2018
Who participates in transactions when information about the consequences must be learned? Motivated by a standard model of costly information acquisition, we conduct an experiment showing that stronger participation incentives disproportionately attract individuals for whom learning is more difficult. Their decision to participate rests on worse information, rendering ex post regret more likely. The selection effect is stronger in contexts in which information acquisition is generally costlier. Our empirical results obtain both for experimental variation in the costs of information acquisition and for various individual-level measures of information costs. Selection on information costs can be substantially more pronounced than selection on risk preferences.
Keywords: experiment, rational inattention, repugnant transactions, incentives
JEL Classification: D01, D63, D83, D91, C91
Suggested Citation: Suggested Citation