This paper tests costly attention models of consumers' misreaction to opaque taxes. We report an online shopping experiment that involves shrouded sales taxes that are exogenously varied within consumers over time. Some consumers systematically underreact to sales taxes whereas others systematically overreact, but higher stakes decrease both under- and overreaction. This is consistent with consumers using heterogeneous rules of thumb to compute the opaque tax when the stakes are low, but using costly mental effort at higher stakes. The results allow us to differentiate between various theories of limited attention. We also develop novel econometric techniques for quantifying individual differences.

This paper develops and deploys a methodology for testing whether people correctly value tools that reduce attention costs. We call these tools bandwidth enhancements (BEs) and characterize how demand for BEs varies with the pecuniary incentives to be attentive, under the null hypothesis of correct perceptions and optimal choice. We examine if the theoretical optimality conditions are satisfied in three experiments. The first is a field experiment ( n = 1373) with an online education platform, in which we randomize incentives to complete course modules and incentives to utilize a plan‐making tool to complete the modules. In the second experiment ( n = 2306), participants must complete a survey in the future. We randomize survey‐completion incentives and how long participants must wait to complete the survey, and we elicit willingness to pay for reminders. The third experiment ( n = 1465) involves a psychometric task in which participants must identify whether there are more correct or incorrect mathematical equations in an image. We vary incentives for accuracy, elicit willingness to pay to reduce task difficulty, and examine the impact of learning and feedback. In all experiments, demand for reducing attention costs increases as incentives for accurate task completion increase. However, in all experiments—and across all conditions—our tests imply that this increase in demand is too small relative to the null of correct perceptions. These results suggest that people may be uncertain or systematically biased about their attention cost functions, and that experience and feedback do not necessarily eliminate bias.