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Experimental Tests of Rational Inattention (with N. Neligh)

Microeconomics Seminar 2020-2021
joint with the Département de sciences économiques, Université de Montréal

Organizer : Sean Horan (U. of Montreal)

* Invitation only. Please contact the organizer if you would like access.


: We use laboratory experiments to test models of rational inattention, in which people acquire information to maximize utility net of information costs. We show that subjects adjust their attention in response to changes in incentives in line with the rational inattention model. However, our results are qualitatively inconsistent with information costs that are linear in Shannon entropy, as is often assumed in applied work. Our data is best fit by a generalization of the Shannon model which allows for a more flexible response to incentives and for some states of the world to be harder to distinguish than others.

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