Costly Information Acquisition: Experimental Analysis of a Boundedly Rational Model

By Xavier Gabaix, David Laibson, Guillermo Moloche, Stephen Weinberg. 2006

629 citations recorded by the source corpus.

The directed cognition model assumes that agents use partially myopic option-value calculations to select their next cognitive operation. The current paper tests this model by studying information acquisition in two experiments. In the first experiment, information acquisition has an explicit financial cost. In the second experiment, information acquisition is costly because time is scarce. The directed cognition model successfully predicts aggregate information acquisition patterns in these experiments. When the directed cognition model and the fully rational model make demonstrably different predictions, the directed cognition model better matches the laboratory evidence. (JEL D83)

Subfields: Finance, General Decision Sciences, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/586ad4ffb9206172344404e2c4747801ffd1259a

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Citations in the corpus

Psychology and Economics: Evidence from the Field (2009, positive): “…have proposed models in which individuals simplify complex 349DellaVigna: Psychology and Economics decisions, for example by processing only a subset of information.31 In economic experiments, the simplifying heuristics include thinking only one step ahead in dynamic problems (Gabaix et al. 2006).”
Rational Inattention, Optimal Consideration Sets, and Stochastic Choice (2018, background): “However, these have typically had to focus on very stylized cases for the sake of tractability: sequential choice of information in more complex settings quickly become intractable (see for example Gabaix et al. [2006]).”
Imperfect Choice or Imperfect Attention? Understanding Strategic Thinking in Private Information Games (2014, background): “Recent economic studies propose and test " directed cognition " (Gabaix et al., 2006), search under time pressure (Reutskaja et al., 2011), and look for within-attribute vs. within-choice comparisons (Arieli et al., 2011).”
The Impact of Homeowners' Housing Wealth Misestimation on Consumption and Saving Decisions (2007, positive): “And homeowners who have lived in the house for a longer time period are likely to have imperfect knowledge of the true value of the house (Agarwal et al. 2006, Gabaix et al. 2006).”
Proximity and Investment: Evidence from Plant-Level Data (2012, background): “For models of limited attention, see Gabaix et al. (2006), Gennaioli and Shleifer (2010), and Bordalo, Gennaioli, and Shleifer (2012). See also DellaVigna”
Demographics and Industry Returns (2007, background): “This paper also contributes to the literature on the role of attention allocation in economics and finance (Gur Huberman and Tomer Regev 2001; David Hirshleifer, Sonya S. Lim, and Siew H. Teoh 2004; Xavier Gabaix et al. 2006; Lin Peng and Wei Xiong 2006; DellaVigna and Pollet 2007; Brad M. Barber an”
Order in Product Customization Decisions: Evidence from Field Experiments (2010, methodology): “Instead of distributing their mental effort efficiently across the configuration process, we invoke the Gabaix et al. (2006) directed cognition model to predict that consumers will behave as if the current decision in a sequence is practically their last (despite the fact that in our experiments it ”
Salience and Taxation: Theory and Evidence (2008, background): “The concept underlying models of bounded rationality is that agents face a cost of processing information and therefore rationally use simplifying heuristics to solve complex problems (see e.g., Conlisk (1988), Conlisk (1996), Gabaix et al. (2006)).”