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Rational inattentiveness in a forecasting experiment

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  • Goecke, Henry
  • Luhan, Wolfgang J.
  • Roos, Michael W.M.

Abstract

While standard theory assumes rational, optimizing agents under full information, the latter is rarely found in reality. Information has to be acquired and processed—both involving costs. In rational-inattentiveness models agents update their information set only when the benefit outweighs the information cost. We test the rational-inattentiveness model in a controlled laboratory environment. Our design is a forecasting task with costly information and a clear cost–benefit structure. While we find numerous deviations from the model predictions on the individual level, the aggregate results are consistent with rational-inattentiveness and sticky information models rejecting simpler behavioral heuristics.

Suggested Citation

  • Goecke, Henry & Luhan, Wolfgang J. & Roos, Michael W.M., 2013. "Rational inattentiveness in a forecasting experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 80-89.
  • Handle: RePEc:eee:jeborg:v:94:y:2013:i:c:p:80-89
    DOI: 10.1016/j.jebo.2013.08.013
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    References listed on IDEAS

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    Keywords

    Experiment; Information; Rational inattentiveness; Forecasting;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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