Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2016
  • Working Paper

Paying (for) Attention: The Impact of Information Processing Costs on Bayesian Inference

By: Scott Duke Kominers, Xiaosheng Mu and Alexander Peysakhovich
  • Format:Print
  • | Language:English
ShareBar

Abstract

Human information processing is often modeled as costless Bayesian inference. However, research in psychology shows that attention is a computationally costly and potentially limited resource. We study a Bayesian individual for whom computing posterior beliefs is costly. Such an agent faces a tradeoff between economizing on attention costs and having more accurate beliefs. We show that even small processing costs can lead to significant departures from the standard costless processing model. There exist situations where beliefs can cycle persistently and never converge. In addition, when updating is costly, agents are more sensitive to signals about rare events than to signals about common events. Thus, these individuals can permanently overestimate the likelihood of rare events (e.g., the probability of a plane crash). There is a commonly held assumption in economics that individuals will converge to correct beliefs/optimal behavior given sufficient experience. Our results contribute to a growing literature in psychology, neuroscience, and behavioral economics suggesting that this assumption is both theoretically and empirically fragile.

Keywords

Behavior; Cognition and Thinking; Economics

Citation

Kominers, Scott Duke, Xiaosheng Mu, and Alexander Peysakhovich. "Paying (for) Attention: The Impact of Information Processing Costs on Bayesian Inference." Working Paper, February 2016.
  • Read Now

About The Author

Scott Duke Kominers

Entrepreneurial Management
→More Publications

More from the Authors

    • Harvard Business Review Digital Articles

    Why Build in Web3

    By: Jad Esber and Scott Duke Kominers
    • Bloomberg Opinion

    Why One Little Goof Drove Wordle Fans Nuts

    By: Scott Duke Kominers
    • Bloomberg Opinion

    The Failure of Covid.gov Is Worse Than Inexcusable

    By: Scott Duke Kominers
More from the Authors
  • Why Build in Web3 By: Jad Esber and Scott Duke Kominers
  • Why One Little Goof Drove Wordle Fans Nuts By: Scott Duke Kominers
  • The Failure of Covid.gov Is Worse Than Inexcusable By: Scott Duke Kominers
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Digital Accessibility
Copyright © President & Fellows of Harvard College