Attention and choices with multiple states and actions: A laboratory experiment

Abstract

We study how a rationally inattentive decision maker chooses state-contingent actions under uncertainty in complex environments. We explore a series of decision problems by varying the number of states as well as incentive structures. We fully characterize the theoretical solutions and compare them to choices made by subjects facing those problems in a controlled laboratory experiment.Observed behavior is broadly consistent with the theoretical model, with subjects responding to changes in complexity and incentives by varying their level of attention. Nevertheless, some interesting differences emerge from the experimental data. In particular, we find only mixed support for the invariance under compression property, that perceptual factors may be required to explain some aspects of subject behavior, and that complexity can affect the ratio of expected utility to information gains.