2017 Reports

Experimental Tests of Rational Inattention

Dean, Mark; Neligh, Nate Leigh

We use laboratory experiments to test models of 'rational inattention', in which people acquire information to maximize utility from subsequent choices net of information costs. We show that subjects adjust their attention in response to changes in incentives a manner which is broadly in line with the rational inattention model but which violates models such as random utility in which attention is fixed. However, our results are not consistent with information costs based on Shannon entropy, as is often assumed in applied work. We find more support for a class of 'posterior separable' cost functions which generalize the Shannon model.'