Costly Information Acquisition: Experimental Analysis of a Boundedly Rational Model

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 financ...

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Bibliographic Details
Published in:The American economic review 2006-09, Vol.96 (4), p.1043-1068
Main Authors: Gabaix, Xavier, Laibson, David, Moloche, Guillermo, Weinberg, Stephen
Format: Article
Language:English
Subjects:
Bounded rationality
Cognition
Cognitive models
Economic forecasting models
Economic information
Economic models
Economic psychology
Economic value
Financial budgets
Games
Information economics
Microeconomics
Model testing
Modeling
Standard deviation
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Summary: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.
ISSN:0002-8282
DOI:10.1257/000282806779468544