Federal Reserve Bank of Dallas
Rationally Inattentive Consumer: An Experiment
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.
Cite this item
Andrea Civelli & Cary Deck & Justin D. LeBlanc & Antonella Tutino, Rationally Inattentive Consumer: An Experiment, Federal Reserve Bank of Dallas, Working Papers 1813, 19 Nov 2018.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
Keywords: Rational Inattention; Experimental Evidence; Information Processing Capacity; Consumption
This item with handle RePEc:fip:feddwp:1813
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