Separating Preferences from Endogenous Effort and Cognitive Noise in Observed Decisions

Christian Belzil and Tomáš Jagelka ()
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Tomáš Jagelka: University of Bonn, Dartmouth College, CREST-Ensae, and IZA

No 2024-13, Working Papers from Center for Research in Economics and Statistics

Abstract: We develop a framework for accounting for individuals’ effort and cognitive noise which confound estimates of preferences based on observed behavior. Using a large-scale experimental dataset we estimate that failure to properly account for decision errors due to (rational) inattention on a more complex, but commonly used, task design biases estimates of risk aversion by 50% for the median individual. Effort propensities recovered from preference elicitation tasks generalize to other settings and predict performance on an OECD-sponsored achievement test used to make international comparisons. Furthermore, accounting for endogenous effort allows us to empirically reconcile competing models of discrete choice.

Pages: 56 pages
Date: 2024-11-19
New Economics Papers: this item is included in nep-cbe, nep-dcm, nep-exp, nep-neu and nep-upt
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http://crest.science/RePEc/wpstorage/2024-13.pdf CREST working paper version (application/pdf)

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Working Paper: Separating Preferences from Endogenous Effort and Cognitive Noise in Observed Decisions (2024)
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