Rational Inattention, Competitive Supply, and Psychometrics

45 Pages Posted: 5 Nov 2018 Last revised: 26 Nov 2018

See all articles by Andrew Caplin

Andrew Caplin

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Dániel Csaba

New York University (NYU)

John Leahy

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy

Oded Nov

NYU Tandon School of Engineering

Date Written: November 2018

Abstract

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.

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Suggested Citation

Caplin, Andrew and Csaba, Dániel and Leahy, John and Nov, Oded, Rational Inattention, Competitive Supply, and Psychometrics (November 2018). NBER Working Paper No. w25224. Available at SSRN: https://ssrn.com/abstract=3278524

Andrew Caplin (Contact Author)

New York University (NYU) - Department of Economics ( email )

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HOME PAGE: http://www.econ.nyu.edu/user/caplina/

National Bureau of Economic Research (NBER)

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Dániel Csaba

New York University (NYU) ( email )

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John Leahy

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

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Ann Arbor, MI 48109
United States

Oded Nov

NYU Tandon School of Engineering ( email )

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New York, NY 11201
United States

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