Rationally Inattentive Consumer: An Experiment

Abstract

This paper presents a laboratory experiment that directly tests the theoretical predictions of consumption choices under rational inattention. Subjects are asked to select consumption when income is random. They can optimally decide to reduce uncertainty about income by acquiring signals about it. The informativeness of the signals directly relates to the cognitive effort required to process the information. We find that subjects' behavior is largely in line with the predictions of the theory: 1) Subjects optimally make stochastic consumption choices; 2) They respond to incentives and changes in the economic environment by varying their attention and consumption; 3) They respond asymmetrically to positive and negative shocks to income, with negative shocks triggering stronger and faster reactions than positive shocks.

A Flexible and Customizable Method for Assessing Cognitive Abilities

“…The advantage of our approach is that one can generate a large number of distinct puzzles for a given level of difficulty, which expands the usefulness of these tools in experimental economics. For example, one can use our puzzles as a real effort task with varying levels of cognitive difficulty while maintaining physical consistency (as in the Rational Inattention experiments of Civelli, Deck, LeBlanc, and Tutino, 2017) or as a way to repeatedly measure performance under different circumstances (as in the comparison of cognitive load techniques by Deck, Jahedi, and Sheremeta, 2017).…”