Rational inattentiveness in a forecasting experiment

Henry Goecke, Wolfgang J. Luhan, Michael W.m. Roos

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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.
Original languageEnglish
Pages (from-to)80-89
JournalJournal of Economic Behavior & Organization
Volume94
Early online date3 Sep 2013
DOIs
Publication statusPublished - 1 Oct 2013

Keywords

  • Experiment
  • Information
  • Rational inattentiveness
  • Forecasting

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