A check for rational inattention

Howard, Greg (2021): A check for rational inattention.

Abstract

Models of rational inattention allow agents to make mistakes in their actions while assuming they do not make mistakes in attention allocation. I test this assumption by comparing attention’s marginal benefit (better actions) and marginal cost (less time for future decisions) using millions of online chess moves. I cannot reject that skilled players equalize marginal benefit and marginal cost across different time controls. Bad players, when they have little time, under-adjust their attention allocation, leading them to have higher marginal cost. A simple intervention improves players' attention allocation.

• Item Type: MPRA Paper
• Language: English
• Keywords: rational inattention, deterministic games, cognitive costs
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving

References

Afrouzi, Hassan and Choongryul Yang, “Dynamic Rational Inattention and the Phillips Curve,” 2021.

Antioch, “chess-blunders,” 2020. https://github.com/Antiochian/chess-blunders.

Bartoˇs, Vojtˇech, Michal Bauer, Julie Chytilov´a, and Filip Matˇejka, “Attention Discrimination: Theory and Field Experiments with Monitoring Information Acquisition,” American Economic Review, 2016, 106 (6), 1437–75.

Bhattacharya, Vivek and Greg Howard, “Rational Inattention in the Infield,” American Economic Journal: Microeconomics, forthcoming.

Biswas, Tamal and Kenneth Regan, “Measuring level-k reasoning, satisficing, and hu- man error in game-play data,” in “2015 IEEE 14th International Conference on Machine Learning and Applications (ICMLA)” IEEE 2015, pp. 941–947.

Brown, Zach Y. and Jihye Jeon, “Endogenous Information Acquisition and Insurance Choice,” Technical Report, University of Michigan 2020.

Campbell, Murray, A Joseph Hoane Jr, and Feng hsiung Hsu, “Deep blue,” Artificial intelligence, 2002, 134 (1-2), 57–83.

Caplin, Andrew and Mark Dean, “Revealed Preference, Rational Inattention, and Costly Information Acquisition,” American Economic Review, 2015, 105 (7), 2183–2203.

Caplin, Andrew, John Leahy, and Filip Matˇejka, “Rational Inattention and Inference from Market Share Data,” Technical Report, CERGE-EI 2016.

Caplin, Andrew, Mark Dean, and John Leahy, “Rational Inattention, Optimal Consideration Sets, and Stochastic Choice,” Review of Economic Studies, 2019, 86 (3), 1061–94.

ChessBase News, “Time is precious for the Ambassador of Blancpain,” 2003. Cohen, Lauren and Andrea Frazzini, “Economic Links and Predictable Returns,” Journal of Finance, 2008, 63 (4), 1977–2011.

Coibion, Olivier, Yuriy Gorodnichenko, and Saten Kumar, “How Do Firms Form Their Expectations? New Survey Evidence,” American Economic Review, 2018, 108 (9), 2671–2713.

Dean, Mark and Nathaniel Neligh, “Experimental Tests of Rational Inattention,” Technical Report, Columbia 2019.

Dewan, Ambuj and Nathaniel Neligh, “Estimating Information Cost Functions in Mod- els of Rational Inattention,” Journal of Economic Theory, 2020, 187, 1–32.

Dreber, Anna, Christer Gerdes, and Patrik Gr¨ansmark, “Beauty queens and bat- tling knights: Risk taking and attractiveness in chess,” Journal of Economic Behavior & Organization, 2013, 90, 1–18.

Duplessis, Thibault, “lichess.org open database,” 2017.

Fosgerau, Mogens, Emerson Melo, Andr´e de Palma, and Matthew Shum, “Discrete Choice and Rational Inattention: A General Equivalence Result,” International Economic Review, 2020, 61, 1569–89.

Gaglianone, Wagner Piazza, Raffaella Giacomini, Jo˜ao Victor Issler, and Vasiliki Skreta, “Incentive-Driven Inattention,” Journal of Econometrics, 2020.

Gerdes, Christer and Patrik Gr¨ansmark, “Strategic behavior across gender: A compar- ison of female and male expert chess players,” Labour Economics, 2010, 17 (5), 766–775.

Iacus, Stefano M, Gary King, and Giuseppe Porro, “Causal inference without balance checking: Coarsened exact matching,” Political analysis, 2012, pp. 1–24.

Kacperczyk, Marcin, Stijn Van Nieuwerburgh, and Laura Veldkamp, “A Rational Theory of Mutual Funds’ Attention Allocation,” Econometrica, 2016, 84 (2), 571–626. Levitt, Steven D, John A List, and Sally E Sadoff, “Checkmate: Exploring backward induction among chess players,” American Economic Review, 2011, 101 (2), 975–90.

Ma´ckowiak, Bartosz, Filip Matˇejka, and Mirko Wiederholt, “Rational Inattention: A Review,” Technical Report, CERGE-EI 2020.

Matˇejka, Filip, “Rationally Inattentive Seller: Sales and Discrete Pricing,” Review of Economic Studies, 2015, 83 (3), 1125–1155.

Menzly, Lior and Oguzhan Ozbas, “Market Segmentation and Cross-Predictability of Returns,” Journal of Finance, 2010, 65 (4), 1555–1580.

Mondria, Jordi, Thomas Wu, and Yi Zhang, “The Determinants of International Investment and Attention Allocation: Using Internet Search Query Data,” Journal of International Economics, 2010, 82 (1), 85–95.

Morrison, William and Dmitry Taubinsky, “Rules of Thumb and Attention Elasticities: Evidence from Under- and Overreaction to Taxes,” Technical Report, UC Berkeley 2020.

Phillips, David C, “Stopping on Nine: Evidence of Heuristic Managerial Decision-Making in Major League Baseball Pitcher Substitutions,” Southern Economic Journal, 2017, 84 (2), 577–599.

Porcher, Charly, “Migration with Costly Information,” Technical Report, Dartmouth University 2020.

Romer, David, “Do Firms Maximize? Evidence from Professional Football,” Journal of Political Economy, 2006, 114 (2), 340–365.

Shannon, Claude E, “A mathematical theory of communication,” The Bell system tech- nical journal, 1948, 27 (3), 379–423.

Shannon, Claude E, “XXII. Programming a computer for playing chess,” The London, Edinburgh, and Dublin Philosophical Magazine and Journal of Science, 1950, 41 (314), 256–275.

Sicherman, Nachum, George Loewenstein, Duane J Seppi, and Stephen P Utkus, “Financial Attention,” Review of Financial Studies, 2016, 29 (4), 863–897.

Sims, Christopher A, “Implications of Rational Inattention,” Journal of Monetary Economics, 2003, 50 (3), 665–690.

Taubinsky, Dmitry and Alex Rees-Jones, “Attention Variation and Welfare: Theory and Evidence from a Tax Salience Experiment,” Review of Economic Studies, 2018, 85 (4), 2462–2496.

Xie, Shihan, “An Estimated Model of Household Inflation Expectations: Information Frictions and Implications,” 2019.