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Costly Information Acquisition: Experimental Analysis of a Boundedly Rational Model

  • Xavier Gabaix
  • David Laibson
  • Guillermo Moloche
  • Stephen Weinberg

The directed cognition model assumes that agents use partially myopic option-value calculations to select their next cognitive operation. The current paper tests this model by studying information acquisition in two experiments. In the first experiment, information acquisition has an explicit financial cost. In the second experiment, information acquisition is costly because time is scarce. The directed cognition model successfully predicts aggregate information acquisition patterns in these experiments. When the directed cognition model and the fully rational model make demonstrably different predictions, the directed cognition model better matches the laboratory evidence. (JEL D83)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 4 (September)
Pages: 1043-1068

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:4:p:1043-1068
Note: DOI: 10.1257/aer.96.4.1043
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