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The Allocation of Attention: Theory and Evidence

45 Pages Posted: 16 Sep 2003  

Xavier Gabaix

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); New York University - Stern School of Business

David Laibson

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Guillermo Moloche

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Stephen Ernest Weinberg

Harvard University

Date Written: August 29, 2003

Abstract

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.

Keywords: attention, satisficing, Mouselab, bounded rationality, behavioral economics, experimental economics, cognitive modeling

JEL Classification: C7, C9, D8

Suggested Citation

Gabaix, Xavier and Laibson, David and Moloche, Guillermo and Weinberg, Stephen Ernest, The Allocation of Attention: Theory and Evidence (August 29, 2003). MIT Department of Economics Working Paper No. 03-31. Available at SSRN: https://ssrn.com/abstract=444840 or http://dx.doi.org/10.2139/ssrn.444840

Xavier Gabaix (Contact Author)

New York University - Stern School of Business ( email )

Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States

HOME PAGE: http://pages.stern.nyu.edu/~xgabaix/

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI)

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David I. Laibson

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Guillermo Moloche

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stephen Ernest Weinberg

Harvard University ( email )

Cambridge, MA 02138
United States

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