Presenting “The Status Quo and Beliefs Polarization of Inattentive Agents: Theory and Experiment” at 10:05-11:30 in QB404.
PLEASE MIND OUR NEW VENUE FOR THIS YEAR!
On 11 March 2020, we have Vladimír Novák of CERGE-EI, Prague visiting us. He is going to give a seminar on “The Status Quo and Beliefs Polarization of Inattentive Agents: Theory and Experiment” at 10:00-11:30 in room B404 in Building Q, Budapest University of Technology and Economics, Faculty of Economic and Social Sciences, Magyar tudósok körútja 2, 1117 Budapest. Sandwiches will be provided. Please help the organisers by registering in advance at egervari.zsuzsanna@qsms.bme.hu Registration is free.
Also, see our Facebook event.
Abstract: Many real-world situations involve a choice between the implementation of a new policy with multiple possible outcomes and the preservation of the status quo. We analyze what information an inattentive agent acquires in such a binary choice problem. Specifically, we model the agent to be rationally inattentive: any information about the new policy can be acquired before the choice is made, but doing so is costly. We show how the choice of information, and thus the belief formation, depends on the agent-specific value of the status quo. Importantly, beliefs can then, in expectations, update away from the realized truth. This is due to endogenous information acquisition because the agent chooses only to learn whether the uncertain payoff is higher or lower than the payoff of the status quo. Consequently, two agents with the same prior beliefs about a new policy might become polarized if they differ in the valuations of the status quo. We show that lower cost of information leads to more severe polarization. We conduct a novel experiment to test and confirm our predicted information acquisition strategy and its dependence on the value of the status quo. In our setting with multiple states, we also replicate the well-known preference for certainty, and verify the occurrence of belief polarization.