Rational Inattention, Competitive Supply, and Psychometrics*

Andrew Caplin, Dániel CsabaQuantCo, John Leahy and Oded Nov

The Quarterly Journal of Economics, 2020, vol. 135, issue 3, 1681-1724

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.

Date: 2020
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Working Paper: Rational Inattention, Competitive Supply, and Psychometrics (2018)
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