Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/308130 
Year of Publication: 
2024
Series/Report no.: 
ECONtribute Discussion Paper No. 350
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
We develop a micro-founded framework for accounting for individuals' effort and cognitive noise which confound estimates of preferences based on observed behavior. Using a largescale experimental dataset we estimate that failure to properly account for decision errors due to (rational) inattention on a more complex, but commonly used, task design biases estimates of risk aversion by 50% for the median individual. Effort propensities recovered from preference elicitation tasks generalize to other settings and predict performance on an OECD-sponsored achievement test used to make international comparisons. Furthermore, accounting for endogenous effort allows us to empirically reconcile competing models of discrete choice.
Subjects: 
Preferences
risk preference
stochastic choice models
endogenous effort
cognitive noise
task complexity
experimental design
JEL: 
C40
D91
Document Type: 
Working Paper

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