Rational inattention in games: experimental evidence

David Almog () and Daniel Martin
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David Almog: Northwestern University

Experimental Economics, 2024, vol. 27, issue 4, No 2, 715-742

Abstract: Abstract To investigate whether attention responds rationally to strategic incentives, we experimentally implement a buyer-seller game in which a fully informed seller makes a take-it-or-leave-it offer to a buyer who faces cognitive costs to process information about the offer’s value. We isolate the impact of seller strategies on buyer attention by exogenously varying the seller’s outside option, which leads sellers to price high more often. We find that buyers respond by making fewer mistakes conditional on value, which suggests that buyers exert higher attentional effort in response to the increased strategic incentives for paying attention. We show that a standard model of rational inattention based on Shannon mutual information cannot fully explain this change in buyer behavior. However, we identify another class of rational inattention models consistent with this behavioral pattern.

Keywords: Rational inattention; Limited attention; Cognitive costs; Strategic pricing; Asymmetric information (search for similar items in EconPapers)
JEL-codes: C91 D82 D83 D90 D91 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10683-024-09843-z

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