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A Model of Mental Effort and Endogenous Estimation Risk

Author

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  • Diego Nocetti

    (The University of Memphis)

Abstract

I present a simple model that formalizes Kahneman's (1973) ideas and experimental work on attention limitations. In addition, I extend his framework to account for the interaction between attention and memory deficits. In particular, I propose that individuals optimally allocate their divisible, but limited, attention to estimate parameters of an economic model, by retrieving observations from a stock of memories, by means of a cognition technology. I speculate that the model might help explain several stylized facts that are at odds with an infinite capacity (fully rational) model.

Suggested Citation

  • Diego Nocetti, 2005. "A Model of Mental Effort and Endogenous Estimation Risk," Economics Bulletin, AccessEcon, vol. 4(14), pages 1-10.
    • Handle: RePEc:ebl:ecbull:eb-05d80044
    as

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    References listed on IDEAS

    as
    1. Becker, Gary S, 1985. "Human Capital, Effort, and the Sexual Division of Labor," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 33-58, January.
    2. Ľuboš Pástor & Veronesi Pietro, 2003. "Stock Valuation and Learning about Profitability," Journal of Finance, American Finance Association, vol. 58(5), pages 1749-1789, October.
    3. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
    4. repec:bla:jfinan:v:58:y:2003:i:5:p:1749-1790 is not listed on IDEAS
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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G0 - Financial Economics - - General

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