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Fields:

Rational Inattention, Competitive Supply, and Psychometrics*

Quarterly Journal of Economics 2020 135(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.