Limited Attention as the Scarce Resource in an Information-Rich Economy
51 Pages Posted: 30 Mar 2005
Date Written: March 2005
This paper uses basic empirical facts from attention and perception psychology for a behavioral approach to equilibrium analysis at the industry and the macroeconomic level. The paper endogenously determines whether an economy is information-rich and whether scarcity of attention complements economic scarcity. A conventional economic equilibrium results if subjects have free attention capacity. At the positive level, the impacts of IT-progress, international integration and media on equilibrium diversity and level of attention-seeking activities are shown. At the normative level, welfare, efficiency and optimal policy interventions are characterized. Finally, behavioral effects of intensified attention-seeking on market power, sectoral economic structure and work-leisure choice are considered.
Keywords: limited attention, information-rich economies, media, diversity, behavioral equilibrium analysis
JEL Classification: D50, D80, L10
Suggested Citation: Suggested Citation