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The allocation of attention: theory and evidence

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

A host of recent studies show that attention allocation has important economic consequences. This paper reports the first empirical test of a cost-benefit model of the endogenous allocation of attention. The model assumes that economic agents have finite mental processing speeds and cannot analyze all of the elements in complex problems. The model makes tractable predictions about attention allocation, despite the high level of complexity in our environment. The model successfully predicts the key empirical regularities of attention allocation measured in a choice experiment. In the experiment, decision time is a scarce resource and attention allocation is continuously measured using Mouselab. Subject choices correspond well to the quantitative predictions of the model, which are derived from cost-benefit and option-value principles.

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File URL: http://mpra.ub.uni-muenchen.de/47339/1/MPRA_paper_47339.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 47339.

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Date of creation: 29 Aug 2003
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Handle: RePEc:pra:mprapa:47339
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  1. Xavier Gabaix & David Laibson, 2002. "The 6D Bias and the Equity Premium Puzzle," Harvard Institute of Economic Research Working Papers 1947, Harvard - Institute of Economic Research.
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  6. Johnson, Eric J. & Camerer, Colin & Sen, Sankar & Rymon, Talia, 2002. "Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining," Journal of Economic Theory, Elsevier, vol. 104(1), pages 16-47, May.
  7. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
  8. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
  9. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  10. L.C.G. Rogers, 2001. "The relaxed investor and parameter uncertainty," Finance and Stochastics, Springer, vol. 5(2), pages 131-154.
  11. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
  12. Jeheil Phillippe, 1995. "Limited Horizon Forecast in Repeated Alternate Games," Journal of Economic Theory, Elsevier, vol. 67(2), pages 497-519, December.
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