Attentional Complements

Abstract

I study how attentional constraints affect elasticity and substitution patterns in demand. I identify “attentional complementarity”, whereby goods that are substitutes in utility appear as complements in behavior due to limits on attention. Adopting the framework of rational inattention, I identify the channels through which attention influences observed substitution patterns. The in-sample fit of these models can be similar to that of standard discrete choice models, yet counterfactual predictions differ substantially when attentional frictions are accounted for. I provide conditions for identification of the general rational inattention model in standard stochastic choice data. A key obstacle in estimation is the genericity of corner solutions which endogenously gives rise to consideration sets. The estimation strategy I employ is robust to this feature. In an empirical application, I show that elasticities are underestimated by models not accounting for attentional frictions. I conduct an experiment allowing for the detailed analysis of attention strategies and find that subjects allocate their attention in line with the theory.