Rational Inattention, Competitive Supply, and Psychometrics

Abstract

We introduce a simple method of recovering attention costs from choice data.Our method rests on a precise analogy with production theory.Costs of attention determine consumer demand and consumer welfare just as a competitive firm's technology determines its supply curve and profits.We implement our recovery method experimentally, outline applications, and link our work to the broader literature on inattention and mistaken decisions.

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