Overprecision and (Ir)rational Inattention

This paper integrates overprecision—a form of overconfidence where individuals overestimate the accuracy of their beliefs—into a canonical rational inattention model. We show that overprecision distorts belief updating directly by biasing the perceived value of new information and indirectly by amplifying the impact of attention costs. We test the model’s predictions in a pre-registered 2 x 2 belief-updating experiment that manipulates overprecision and information costs. The results confirm that overprecision reduces updating and that higher information costs lead to lower responsiveness to signals. While our pre-registered analysis finds no support for the predicted interaction between overprecision and attention costs, a more granular specification shows that the effect of information costs on belief updating is stronger for overprecise participants. These findings suggest that what appears as rational inattention partly reflects irrational inattention arising from misperceived prior accuracy, underscoring the need to distinguish informational frictions from cognitive biases when modeling attention.