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Attention and Selection Effects

Author

Listed:
  • Sandro Ambuehl
  • Axel Ockenfels
  • Colin Stewart

Abstract

Who participates in transactions when information about the consequences must be learned? We show theoretically that decision makers for whom acquiring and processing information is more costly not only respond more strongly to changes in incentive payments for participating but also decide to participate based on worse information. With higher payments, the pool of participants consists of a larger proportion of individuals who have a worse understanding of the consequences of their decision. We conduct a behavioral experiment that confirms these predictions, both for experimental variation in the costs of information acquisition and for various measures of information costs, including school grades and cognitive ability. These findings are relevant for any transaction combining a payment for participation with uncertain yet learnable consequences.

Suggested Citation

  • Sandro Ambuehl & Axel Ockenfels & Colin Stewart, 2018. "Attention and Selection Effects," Working Papers tecipa-607, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-607
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    File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-607.pdf
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    References listed on IDEAS

    as
    1. Robert J. Aumann, 1995. "Repeated Games with Incomplete Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011476, November.
    2. Filip Matêjka & Alisdair McKay, 2015. "Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model," American Economic Review, American Economic Association, vol. 105(1), pages 272-298, January.
    3. Andrew Caplin & Mark Dean & John Leahy, 2017. "Rationally Inattentive Behavior: Characterizing and Generalizing Shannon Entropy," NBER Working Papers 23652, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Experiment; rational inattention; repugnant transactions; incentives;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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