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Rational allocation of attention in decision-making

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  • Schmitt, Stefanie Yvonne

Abstract

This paper proposes a model of attention allocation in decision-making. Attention has various definitions across the literature. Here, I understand attention as selecting information for costly processing. The paper investigates how an agent rationally allocates attention. The resulting attention allocation is context-dependent and influences choice quality. Next to inattention, two strategies of allocating attention prevail. These strategies share similarities with bottom-up and top-down attention - concepts reported in the psychological literature. Exploring firms' strategic considerations reveals an incentive for firms to produce high quality and highlight quality, if consumers expect low quality, and to exploit consumers by producing low quality and shrouding quality, if agents expect high quality.

Suggested Citation

  • Schmitt, Stefanie Yvonne, 2016. "Rational allocation of attention in decision-making," BERG Working Paper Series 114, Bamberg University, Bamberg Economic Research Group.
    • Handle: RePEc:zbw:bamber:114
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    References listed on IDEAS

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    Cited by:

    1. Mundt, Philipp & Alfarano, Simone & Milaković, Mishael, 2020. "Exploiting ergodicity in forecasts of corporate profitability," Journal of Economic Dynamics and Control, Elsevier, vol. 111(C).

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    More about this item

    Keywords

    rational attention; information-processing; decision-making; shrouding;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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