ABSTRACT
The standard economic model assumes that people use all available information when making decisions. But individuals may be partly inattentive to available information due to the cognitive costs of information acquisition or processing. If the cost of full attention exceeds the benefit from making a better-informed choice, then inattention can be in an individual’s best interest. Alternatively, if individuals are inattentive to information that is freely available, requiring little cognitive effort to process, then it is more difficult to rationalize their behaviors. This chapter explores evidence that freely available information is indeed neglected. It begins with a simple framework for modeling inattention. The following section estimates the magnitude of this partial attention, using evidence from auctions (e.g., shipping costs, the bidder’s curse, left-digit bias), taxes, and finance. Inattention can also manifest as neglecting the incentives of persuaders. Evidence of such persuasion — among investors and voters — concludes the chapter.
