Attention and Selection Effects

90 Pages Posted: 24 Jul 2018

See all articles by Sandro Ambuehl

Sandro Ambuehl

University of Toronto - Rotman School of Management

Axel Ockenfels

University of Cologne - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Colin Stewart

University of Toronto - Department of Economics

Date Written: June 11, 2018

Abstract

Who participates in transactions when information about the consequences must be learned? We show theoretically that decision makers for whom acquiring and processing information is more costly respond more strongly to changes in incentive payments for participating and decide to participate based on worse information. With higher payments, the pool of participants thus consists of a larger proportion of individuals who have a worse understanding of the consequences of their decision. We conduct a behavioral experiment that confirms these predictions, both for experimental variation in the costs of information acquisition and for various measures of information costs, including school grades and cognitive ability. These findings are relevant for any transaction combining a payment for participation with uncertain yet learnable consequences.

Keywords: rational inattention, incentives, selection effects, cognitive ability, experiment, repugnant transactions

JEL Classification: D010

Suggested Citation

Ambuehl, Sandro and Ockenfels, Axel and Stewart, Colin, Attention and Selection Effects (June 11, 2018). CESifo Working Paper Series No. 7091. Available at SSRN: https://ssrn.com/abstract=3215096

Sandro Ambuehl (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Axel Ockenfels

University of Cologne - Department of Economics ( email )

Albertus Magnus Platz
Cologne 50923
Germany

HOME PAGE: http://ockenfels.uni-koeln.de/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Colin Stewart

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada

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