Groupe de REcherche en Droit, Economie, Gestion UMR CNRS 7321

THE ‘ECONOMICS OF ATTENTION’: A NEW AVENUE OF RESEARCH IN COGNITIVE ECONOMICS Documents de travail GREDEG GREDEG Working Papers Series

Agnès Festré Pierre Garrouste

GREDEG WP No. 2012-12 http://www.gredeg.cnrs.fr/working-papers.html Les opinions exprimées dans la série des Documents de travail GREDEG sont celles des auteurs et ne reflèlent pas nécessairement celles de l’institution. Les documents n’ont pas été soumis à un rapport formel et sont donc inclus dans cette série pour obtenir des commentaires et encourager la discussion. Les droits sur les documents appartiennent aux auteurs. The views expressed in the GREDEG Working Paper Series are those of the author(s) and do not necessarily reflect those of the institution. The Working Papers have not undergone formal review and approval. Such papers are included in this series to elicit feedback and to encourage debate. Copyright belongs to the author(s).

The “economics of attention”: a new avenue of research in cognitive economics by Agnès Festré University of Picardie (CRIISEA) and University of Nice-Sophia Antipolis (GREDEG1) and Pierre Garrouste University Nice-Sophia Antipolis (GREDEG)

Introduction One of the main problems of our contemporary economies is not the access to information but rather information overload, which competes with an insufficient and limited amount of attention. The rising activity of bloggers or the intense use of social networks (Facebook, Twitter, etc.) is a clear indication of how crucial this problem is today. One of the main consequences of this limited attention is indeed that information goods providers are seeking to capture users’ attention by more and more sophisticated devices that permit to search, filter and communicate the data that are relevant and useful for consumers (Varian and Shapiro, 1999). This is why we speak nowadays of the “economics of attention2”. In recent years, several economists have addressed the problem of limited attention, which Camerer (2003) listed as one of the more important topics of behavioural economics3. Even in the field of macroeconomic policy, rational inattention – namely, which parts of macroeconomic data should rational agents evaluate if limited-processing capacity forces them to discard part of the data? – has been pinpointed by central bankers as one of the lessons to be drawn from the

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GREDEG is a Research Group in Law, Economics and Management, UMR 7321, University of Nice-Sophia Antipolis and CNRS (National Center for Scientific Research). 2

The first appearance of the notion of attention in this field is due to Michael Goldhaber (1997) in a seminal online article where he describes the economics of attention as a sub-field of the “Internet economics”, focusing on the time-consuming dimension of information, especially when it is overflowing as it is the case in the so-called Internet Economy where “information glut” have now become commonplace. In such contexts, attention (rather than information or even knowledge) has become a critical economic resource for decision-making, and attention a major incentive for business. 3

“Another interesting psychological concept, neglected in behavioral economics until recently, is limited attention. Attention is the ultimate scarce cognitive resource. It is possible to learn to attend to many stimuli at the same time—as busy financial-market floor traders and cell-phone-using drivers do—but long-term memory suffers. Scarce attention might be useful for explaining economic phenomena like organizational structure (division of labor expands organizational attention but is constrained by the need to coordinate) and advertising (which “grabs” attention).” (Camerer, 2003, p. 16).

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2008 financial crisis4 and by some economists as an alternative to the assumption of rational expectations in inflation forecasting notably (Akerlof, Dickens and Perry 2000, Sims 2003, Shiller 1997). In the field of financial theory, a paper by Hirschleifer and Teoh (2003) analyzes the implications of investors’ limited attention for firms’ information policy and financial market equilibrium. In management sciences, Davenport and Beck (2001) look at attention from the perspective of business economics. In other scientific fields such as biology, Dukas (2004) reviews the evolutionary roots of limited attention and its role in the fitness of animals. The concept of attention is however a very old one in social sciences. Originally a philosophical, then a psychological concept, it became popularized in economics thanks to Herbert Simon, whose work on information and cybernetics in the 50s focused on the interference between information and cognitive capacities, thus making crucial the issue of attention scarcity. Contrary to what is usually assumed in economic analysis, namely unlimited perfect rationality, he considered that the human brain had inherent limits due to both language articulation and storage capacity. In particular, we think that the notion of attention could be fruitfully applied to many other concrete situations than those considered so far, as well as to more abstract theoretical issues such as, for instance, the problem of convergence of individual decisions or actions towards a focal point raised for the first time by Schelling in 1960. This chapter is an attempt to assess the fertility of an economic approach of attention that draws insights from other disciplines, more specifically, cognitive psychology. This endeavor also aims at opening up new directions in research in cognitive economics (for a presentation of existing approaches in cognitive economics, see Egidi and Rizzello 2004, 2 vols.). The chapter is organized as follows. Section 1 shows that the historical roots of the notion of attention arose from philosophy, then became an object of intense study in psychology and subsequently penetrated the fields of economics and organization sciences. Section 2presents the main characteristics of what is called nowadays the ‘economics of attention’. Section 3 concludes by developing a research agenda on this topic. 4

As indicated by Trichet in his opening address dedicated to “Lessons from the crisis for macroeconomics and finance theory” at the ECB Central Banking Conference held in Frankfurt in November 2010: “When the crisis came, the serious limitations of existing economic and financial models immediately became apparent. (…) we may need to consider a richer characterisation of expectation formation. Rational expectations theory has brought macroeconomic analysis a long way over the past four decades. But there is a clear need to reexamine this assumption. Very encouraging work is under way on new concepts, such as learning and rational inattention.”

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1. The historical roots of the notion of attention

1.1.Originally a philosophical, then a psychological concept At its origin the concept of attention was mainly interesting philosophers. Aristotle, for instance, in De Anima, accepted the assumption that the stronger stimulus tends to extrude the weaker, but did not conclude that, as a consequence, two objects could be perceived simultaneously (see Hatfield, 1995, p.8). In fact, before the birth of psychology as an autonomous science in the 18th century5, philosophers typically considered attention with the context of apperception, which refers to the mechanism by which something is identified from a substrata and new ideas became associated with existing ones. Malebranche (1675) viewed attention as a natural mechanism allowing the perceptions to be clearer. Condillac (1754) considered that attention could be identified to sensation and distinguished ‘passive’ attention (given by the senses) from ‘active’ attention (linked with memory). Leibniz (1704) suggested, using the metaphor of one’s loss of awareness of the constant sound of a waterfall, that events could cease to be apperceived (i.e., represented in consciousness) without specific attention. He therefore claimed that attention determined both what is and what is not apperceived6. The term of apperception was still employed in the 19th century by Wundt (1832-1920), one of the founders of modern psychology, in order to describe different concentric fields of awareness from general (Blickfeld) to focal (Blickpunkt) features of human awareness. But one of the most influential works on attention in psychology is found in William James’s Principles of Psychology (1890), where attention is defined as follows:

“Every one knows what attention is[7]. It is the taking possession by the mind, in clear and vivid form, of one out of what seem several simultaneously possible objects or trains of thought. Focalization, concentration, of consciousness are of its essence. It 5

For a history of the concept of attention in psychology, see Hatfield ([1995] 1998). Hatfield ([1995] 1998) claims that the notion of attention has been introduced in psychology in 1730 by Wolff (1738). 6 For a history of the notion of attention in philosophy, see Théodule Ribot (1889) and the introduction by Serge Nicolas of Ribot (2007). 7 One century later, Pashler points out the difficulty one has to define and grasp the concept of attention: “No one knows what attention is, … and…There may even not be an ‘it’ there to be known about (although of course there might be)”. (Pashler, 1998, p. 1).

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implies withdrawal from some things in order to deal effectively with others and is a condition which has a real opposite in the confused, dazed, scatterbrained state which in French is called distraction and Zerstreutheit in German.” (James, The Principles of Psychology, 1890, p. 403-404).

In James’ time, the method more commonly used to study attention was introspection, except for earlier isolate attempts to measure attention and one of the major debate of this period was whether it was possible to split attention (i.e., to attend to two things at a time) or to attend to something in a state of distraction8. But unfortunately, while methods to measure attention were developing, the study of attention as a mental process became marginalized by the rise of behaviourism and positivism. Behaviourism’s principal advocates John Watson, was interested primarily in stimulusresponse relations, and therefore, confined attention to an operational concept defined in terms of discriminative response to external stimuli9. Interest in attention revived during the cognitive revolution of the 1940s, when engineers and applied psychologists became involved in problems of man-machine interaction in various military contexts. Gradually, the individual came to be viewed as a processor of information. From this perspective, attention was conceived, in compliance with the principles of information theory (Shannon 1948), as a function of the improbability of an event to happen and of the frequency of similar past events (which provides a measure of the surprise value or the degree of novelty). Thus an event that has never been experienced before has a high surprise value and should attract attention, even if it lacks any specific associations or consequences. This seems at odds with the diffused, even though paradoxical, idea that

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As reminded by Hatfield ([1995] 1998), the first empirical works attempting to measure attention can be traced back to Wolff (1738) or Bonnet (1755). Later one, Donders (1858), a Dutch ophthalmologist, provided one of the first major advances in measuring attention while working on the anomalies of accommodation and refraction on the eye (physiologic dioptrics), using mental chronometry. Pillsbury (1906) suggested three methods for measuring attention: the first relied upon tests that measured performance of a task judged to require a high degree of attention; the second measured diminished attention through decreased performance; and the third gauged the strength of attention by the stimulus level required to distract the individual. In parallel, Titchener (1908) identified seven laws that were empirically discovered by psychologists working on attention: “clearness is an attribute of sensation”, “the law of two levels” – which accepts that clearness of one partcontents of consciousness implies the decreased clearness of all the rest , the law of accommodation”, “the law of prior entry”, “the law of limited range”, “the law of temporal instability” and “the law for measuring the degree of attention” (see Hatfield, [1995] 1998). 9 Previous experiments between 1907 and 1910 by the Russian physiologists Pavlov and Bekhterev on dogs and animals showed that the conditioned responses to stimuli included measureable signs of attention such as pricked-up ears, head turned towards the stimulus, increased muscular tension, etc.

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attention depends on both the unexpectedness of events and of their familiar association. This drawback, together with the recognition by cognitive psychologists of the incalculable effect of past experience on the information carried by any binary digit ultimately led them to abandon information theory. In modern psychology, traditional views have focused on selective attention10, following seminal experiments by Colin Cherry (1953) and Broadbent (1958) on dichotic listening: subjects use a set of headphones to listen to two streams of words in different ears and selectively attend to one stream. Attention was modeled as a selection filter and the main research question was whether the selection filter operated before or after cognitive processing (early vs. late selection models of attention11). Recent advances in imaging technology, particularly the development of functional magnetic resonance imaging (fMRI) in the 1990s, have provided evidence of a neural correlate of selective attention (Posner and Raichle, 1994) in agreement with former experiments performed on monkeys in the 1960s12. In 1973, Kahneman developed a famous model of executive attention13 which broke with the prevailing tradition of filter theories14, by relying on the assumption that there is one central

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Selective attention is often loosely defined. A few definitions from the literature are: “the differential processing of simultaneous sources of information” (Johnson and Dark, 1986, p. 44); “a system of cognitive processes that manages the burden of having too much to do at once by prioritizing among stimuli to be processed” (Carr, 2004, p. 56); and “the generic term for those mechanisms which lead our experience to be dominated by one thing rather than another’ (Driver, 2001, p. 53). Nowadays, one point of agreement is that selective attention is a broad concept covering many distinct mechanisms operating in a variety of brain systems, if not the entire system rather than one specific function or mechanism as some scientists maintain. For instance, Posner (2004) localized this function in the “attentional organ system”, LaBerge (2004) in the “triangular circuit” and McKnight (2007) in the synchronization of activity between prefrontal, parietal and mediotemporal cortex. 11 Broadbent (1958) and Triesman (1969) conclude in favor of early selection models, showing that attention shuts down or attenuates processing in the unattended ear before the mind can analyze its semantic content. At the opposite, Deutsch and Deutsch (1963) support the late selection view by showing that the content in both ears is analyzed semantically, even if the words in the unattended ear cannot access consciousness. Results like that of MacKay (1973) posed problems for filters theories, by showing that even unconscious stimuli could be processed to a high degree. For a survey on the early literature on attention in psychology, see Kahneman and Triesman (1984). 12 For instance, Robert Wurtz, a neuroscientist specialized in physiology of the visual system at the National Institute of Health began to record electrical signals from the brains of macaques trained to perform attentional tasks in the beginning of the 70s. 13 The notion of executive attention is even more loosely defined that the one of selective attention. It is defined by Posner and Rothbarth (1998) as “the regulation of thought, emotion and behavior.” (Posner and Rothbart, 1998, p. 1915). Norman and Shallice include planning, conflict resolution, decision-making, error correction, and overcoming habitual responses to perform novel or difficult tasks as executive processes (Norman and Shallice, 1986, pp. 2-3). The consensus seems that executive attention involves centralized supervisory control, which and requires two important functions 1) information about and 2) causal influence over the things supervised and controlled.

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resource limited capacity for attention (based in the frontal cortex) for which all activities requiring attention compete15. It is to be noted that this model derives from Kahneman’s well-known dual-task system based on the differentiation between endogenous (voluntary) and exogeneous (involuntary/automatic) control in. In Kahneman’s words, voluntary attention means that the subject attends to stimuli because they are relevant to a task that he has chosen to perform (Kahneman 1973, p. 4), whereas involuntary attention is related to level of arousal, which is largely controlled by the properties of the stimuli to which an organism is exposed.” (p. 3). Kahneman’s model has been criticized on the ground that it involved a “homunculus problem”: to wit, “a little man inside the brain” (Allport, 1980, p. 113) who directs attention. For Stinson (2009), this homunculus problem16 is attached to all theories of attention when top-down17, or executive attention is thought of as a cause rather than an effect. Moreover, Stinson argues that neither empirical evidence in neurosciences nor computational models purporting to support causal executive theories of attention can set down the issue in a

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See, for instance, the highly influential feature integration theory of Triesman and Gelade (1980). According to this theory, attention binds different features of an object (e.g. color and shape) into consciously experiences wholes. 15 Pashler (1998) summarises the empirical evidence obtained in attention psychology research under the term controlled parallel processing, asserting that capacity limits and perceptual gating both characterize human perceptual processing (Pashler 1998, p. 224). According to this author, many controversies in psychology research result from the fact that some researchers identify the concept of attention with the allocation of a limited processing capacity to a given set of items, while others relate attention to the selection of this set by a gating mechanism. The gating mechanism implies that mental resources are allocated only to those items that have passed the perceptual filter, while the rest is ignored. Wickens (1980) refers to Kahneman’s model as an approach focusing on the ‘energetic’ side of attention as compared to filter theories that focus on its ‘selective’ side. As summarized by Ruz, “whereas selection theories aimed at localizing the point in the processing chain (from perception to motor responses) at which irrelevant stimuli were filtered out (i.e., the location of the ‘bottleneck’), energetic views investigated how resources were divided among tasks or the unitary or multiple nature of this ‘attentional energy’.” (Ruz, 2006, p. 499). 16

“The homunculus problem could more generally be attached to any explanation of how a mechanism achieves a given ability that involves the assumption that some part of the mechanism has the ability.” (Stinson, 2009, p. 7) 17 Another distinction found in the psychological literature is between bottom-up and top-down approaches of attention. Bottom-up attention is thought of as arising directly from outside stimuli (e.g. flashing lights, sudden noises, or any stimulus that has either instinctive or learned importance, such as the sight of a predator, or the sound of your name). These stimuli evoke stronger neural responses than less salient stimuli regardless of task, environment, or training. Top-down attention is thought of as arising from internal stimuli such as memories and thought. But this distinction (like the distinction between early and late selection – see above) is somewhat troublesome since 1) it is not enough for a stimulus to be right in front of your eyes for you to attend to it as the examples of “inattentional blindness” (Rees, Russell, Frith and Driver, 1999) and “change blindness” (Rensink, O’Reagan and Clark, 1997) exemplify; 2) like similar distinctions between automatic vs. controlled, stimulus-driven vs. goal-directed, passive vs. active, and exogenous vs. endogenous, it has both literal and metaphorical meanings, and could either imply direction of processing or level of automacity, although the two meanings do not always match (Stinson, 2009, p. 139).

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satisfactory way18. If trying to define attention as a whole, and attempting localizing it as such in the brain seems a fruitless approach, a decomposition strategy aiming at developing taxonomy of attention at the appropriate level of explanation is potentially useful for suggesting provisional definitions of what attention might be. For instance, in the taxonomy provided by Posner and Fan (2004), attention is conceptualized as a system of different anatomical areas that is composed by three distinct and specialized modules: the alerting network; the orienting network and the executive network19. For authors who conceive science as a self-corrective enterprise, such decomposition can be used to support, modify or falsifies proposed mental taxonomies of the mind. The problem is due to the fact that different taxonomies of attention coexist. It is not problematic per se but the result is that the empirical results could be very different. As an example, the relations between attention, working memory and intelligence depend on the kind of attention that is used. Sustained attention is significantly correlated with intelligence but divided attention is not (Schweizer and Moosbruger, 2004, p. 330). Attention is now viewed by some psychologists as functioning as networks connecting distributed areas of the brain, although these “networks support not only the general functions of attention common to all people, but also the individual differences that relate to aspects of temperament and intelligences.” (Posner and Rothbart, 2007, p. 18). In a nutschell, in recent years, there has been extensive research aimed at supporting the production of mental taxonomy, with converging evidence coming from different domains (psychology, psychophysiology, cognitive sciences, psychophysics, and so on)20. Let us no investigate how the notion of attention penetrated the field of economics.

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Whether the study of the biological basis of cognition (thanks to the introduction of neuroimaging techniques in particular) can be useful for the understanding of cognitive processes in general (or those involved by attention in particular) is in itself a controversial issue. A first line of criticism argues that the understanding of higher cognitive functions in the brain is impossible given the lack of modularity of these processes and the nonlinear and dynamic nature of brain functioning (Uttal, 2001). A second line of criticisms claims that cognitive processes are independent of its biological implementation, and thus the information about the brain is not relevant to explain how cognition takes place (Fodor, 1999). 19 The alerting network is conceptually related to ‘energetic’ theories of attention and generates change in the preparatory state of the organism in expectation of an incoming stimulus; the orienting network selects stimuli from sensory input and involves both voluntary and automatic changes in the allocation of attention, while the executive network monitors and resolves conflicts between different representations in the control of behavior. 20

Eye tracking as an example is used to analyze the way individuals read (and then learn to read) (Just and Carpenter 1980; Baccino and Manunta, 2005) but also the effects of advertising (Pieters, Rosenberg and Wedel, 1999; Pieters, Wedel and Zhang , 2007) and more generally the relations between eye movements and individuals’ behavior.

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1.2. The diffusion of the notion of attention in economics and organizational sciences The beginning of the diffusion of the notion of attention into economics and organizational sciences may be traced back to Herbert Simon. Ocasio (1997), who is known for having developed an “attention-based view” of the firm, refers to Simon’s early work on administrative behaviour (1947) and reminds that Simon’s well-known ‘limited rationality’ assumption hinges on the limited attentional capability of humans and serves as a justification for the existence of organizations and institutions as means of orienting attention. As Simon wrote, “Organizations and institutions provide the general stimuli and attention-directors that channelize the behaviors of the members of the group, and that provide the members with the intermediate objectives that stimulate action.” (Simon, 1947, pp. 100-101). Simon’s contribution is therefore characterized by a dual emphasis on cognition (limited attention capacity) and structure (how organization shapes individual’s attention). In later works, he anticipated some of the topical economic literature devoted to attention allocation in information-rich environments (see e.g. Falkinger 2007 2008): “(…) in an information-rich world, the wealth of information (…) creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.” (Simon, 1971, p. 40). Simon’s influence first penetrated the field of organization theory, where the concept of attention has a long history and tradition (see Festré and Garrouste 2012). Different authors have stressed different aspects of attention allocation and structuring, but not in a unified perspective. In particular, they have emphasized either attention as shaped by routines and bounded rationality (March and Simon, 1958; Cyert and March, 1963), or alternatively, how attention as loosely coupled through enactment processes (Weick, 1979) and organized anarchy (Cohen, March and Olsen, 1972). But in the process, as pointed out by Ocasio, “the effects of the social structure on the channelling and distribution of decision-makers’ attention have been greatly deemphasized if not entirely ignored.” (Ocasio, 1997, p. 188). Ocasio (1997) tries to restore this important feature of Simon’s contribution by developing an explanation for firm behaviour based on the structuring of organizational attention. Organization attention processing and regulation is shown to be the result of three principles: at the level of individual cognition, the principle of focus of attention links attentional processing to individual cognition and behaviour; at the level of social cognition, the principle 8

of situated attention highlights the importance of the situational context in explaining what decision-makers attend to; at the organizational level, the principle of structural distribution of attention builds explain how the firm’s economic and social structures regulate and channel issues, answers, and decision-makers into the activities, communications, and procedures that constitute the situational context of decision-making. Rerup (2010) extends Ocasio’s framework by focusing not only on top-down senior management processes in directing attention but also on their synchronization with bottom-up processes, which are ignored by Ocasio’s approach. This “synchronized prospective attention” (as he calls it) is of prime importance when non-salient but potentially very damaging threats are involved in organizations. These situations are characteristic of the health care sector (Madsen et al. 2006), of military or intelligent activities (Baker and Hulse, 2009), or of air traffic control, were organizations need to swiftly allocate attention to emerging issues. Research on visual attention using eye tracking techniques21 has also been a source of inspiration for management sciences in general and marketing in particular. Pieters and Warlop (1999) analyse the impact of time pressure and task motivation on visual attention during brand choice. First, they show that consumers with high task motivation filter brand information less and pictorial information more. Second, they show that consumers under time pressure filter textual ingredient information more, and pictorial information less. Those results have interesting implication for packaging and shelf lay-outs strategies. Pieters, Rosenberg and Wedel (1999) address attention wear-out and the impact of repetition on advertising effectiveness using eye-tracking methodology and scanpath theory22. Their findings confirm that attention duration drops over repeated exposures to advertisements and suggest that when consumers can control exposure duration themselves, such as with print or electronic advertising, they adapt exposure duration to limit satiation. In a related study, Pieters and Wedel (2007) test whether consumers can control their visual attention to

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Major contributors to visual attention are LaBerge (1983) and Eriksen and St James (1986). La Berge was inspired by the work of William James and developed the so-called “spotlight” model, which describes visual attention as having a focus, a fringe, and a margin. Eriksen and St James developed a second model, called the “zoom-lens” model, which extends the spotlight model by adding the property for attention to be changing in size. Michael Posner (Op. Cit) is also known for his seminal work in the 1990s on selective visual attention. 22 Scanpath theory (Noton and Stark 1971, Stark 1994) postulates relatively stable patterns of eye fixations. In the context of print advertising, those features facilitate identification of the advertisements’ content in repeated exposures.

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advertising with processing goals23 and a free-viewing condition. They show that an admemorization goal enhances attention to the body text, pictorial and brand design objects, whereas a brand-learning goal enhances attention to the body text but simultaneously inhibits attention to the pictorial design. Those results supports the thesis that ad informativeness and attention is goal contingent rather than a dumb process guided by perceptual salience of the ad stimuli only. In the same vein, Orquin (2011) applies eye tracking techniques and provides insights for designing product packages so as to catch attention of consumers on supposedly relevant features such as health cues for instance. Robert Lanham24 (2006), who attempts to trace the intellectual roots of what he calls the “economics of attention”, also refer to Gregory Bateson and Friedrich von Hayek as forunners of the ‘economics of attention’ (for a more precise history of economic thought account of the notion of attention, see Festré and Garrouste, 2012) . On the one hand, Bateson (1972) insisted on the scarcity of conscious attention, an economy he called ‘systemic awareness’. On the other hand, Sensory Order (1952), Hayek defines attention as a “state of excitatory preparedness”, which is not restricted to the conscious level (it can be involuntary) and which is of pecular importance for permitting “a social or conventional representation of the world which [the individual] share with his fellows.” (Hayek, 1952, p. 140 and p. 142). Let us now investigate how the notion of attention is dealt with in current economic analysis. 2. The “economics of attention”: The state of the art Very broadly, one can distinguish between two different approaches of attention economics. On the one hand, attention economics is considered as a ramification of information economics which derives from Shannon’s mathematical theory of communication (Shannon 1948). This approach assumes full rationality and deals with sub-optimalities caused by asymmetric information and information overload. Key empirical issues relate to information pollution and its solutions (market-based mechanisms, institutional or regulatory devices). On the other hand, attention economics also refers to economic approaches that characterize limited attention as a justification for near-rational or bounded rational behaviors.

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Those processes include two learning goals (ad-memorization and brand learning), one appreciation goal and one evaluation goal. 24 Robert Lanham is Professor emeritus of English literature at UCLA. His book The Economics of Attention is about the move from an economic system based on things and objects to an economics of attention where the central commodity is not stuff but style, i.e., what he labels fluff, for style is what competes for our attention amid the din and deluge of new media in order for us to make sense of overflowing information.

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2.1. Attention economics as a ramification of the economics of information According to this approach, “attention economics” is conceived as a ramification of the socalled “economics of information and networks” (cf. Varian and Shapiro 1999). From this perspective, the specific questions raised by the attention economy are amenable to standard economic analysis. Attention is described as a scarce good that is likely to be depleted due to an overload of information. This implies that the real value that is brought by an information provider is given by its capacity to localize, to filter and to communicate the relevant information to users. It is no coincidence that most successful websites are Internet search engines since those websites allow users to find the most relevant information while avoiding all the rest of non useful information. For instance, the success of Google lies in precise assignment of advertisement links to the context of the keywords that are searched by the user. Briefly, from this perspective, attention economics is about the interplay of attention and information, and discuss the various possibilities of information providers to particularize information in order to catch users’ attention. Business strategies of price or product differentiation such as price discrimination (personalized price or preferably group pricing due to the existence of network externalities, switching costs and product sharing) or product differentiation (e.g. providing two versions of the same information good in order to favor self-selection of consumers) provide ways to capture attention. In other words, more and more detailed and precise methods of acquisition of information on the user’s needs, and consequent exact targeting of the advertising are a key to successful marketing strategies. In a nutshell, the objective is not only to attract the attention of the user but also to give him/her with higher utility providing him with more relevant information, i.e., to pay attention to him/her. Amazon.com provides a good illustration of the twofold perspective of “catching the attention on something or somebody” on one hand, and on “paying attention to someone” on the other. Some of the features of the website are indeed dedicated to make clients feel they are paid attention to: e.g., personalized services such as historical record of personal account, updates sent via e-mails, twitter or text, recommendations, polls, discussion forums, etc. Some others, by contrast, are clearly intended to catch the attention of clients: e.g., hits, free trials of services, free applications, deals of the day, shopping and shipping facilities, etc.

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The fact that attention is becoming a rare resource has dramatic empirical consequences for information users. An important literature looks indeed at the problem raised by the explosion of electronic interactions and particularly to development of web spam. It is costly for the receiver to open spam just because first he does not know ex ante if the message he opens is or not a spam, and second he needs to mobilize, perhaps loosely his attention on the message. There is then an asymmetry of information between the sender, who knows the contents of the message and the receiver, who does not. Typically, this situation is a case of externality, whereby information pollution is imposed by the sender of the message to the receiver. Three main solutions – namely, technological, institutional or market-based – have been proposed to reduce the welfare losses induced by spams. The two first are intuitive, trying to set up antispam filters for the first and enforcing laws for the second25. The third one includes stamps (Kraut et al. 2002 2005), surcharges on communications and auctions (Zandt, 2001) or attention bond mechanism (Loder, Van Alstyne and Wash, 2004). Market-based solutions relates to Ronald Coase’s (1960) ideas to control externalities. They are either based on experiments that are design to test whether charging a price for sending electronic mails could have a disciplinary effect on senders or/and whether it may inform recipients about the value of a message to the sender before they read it (Kraut et al. 2005). Zandt (2001) discusses the potential benefit of implementing mechanisms for allocating attention such as surcharges on communications and auctions. He shows that the mechanisms increase the cost of sending messages and shift the task of screening messages from the receivers to the senders. An increase in the supposedly low communication cost benefits most (but not all) receivers. By contrast it is beneficial to receivers only if this tax is redistributed to them by lump-sum transfers to receivers or if the sender’s information about the receivers is accurate. Loder, Van Alstyne and Wash (2004) shows the superiority of the Coasian solution of individual negotiation over the worth of a given message (e.g. the information known to the sender rather than the content of the message) rather than a unilateral decision by a controlling party in presence of information asymmetry. Even if such negotiation itself however consumes attention and carries with it an attention cost, in certain cases, recipients can be better off than even a cost-free perfect filter. In this model, the attention cost consists in ‘attention bonds’ that play the role of screening devices. Some other works like the one of Huberman and Wu (2007) try to understand how attention propagates and eventually fades away as a result of collective action. 25

According with Lodor, Van Alstyne, and Wash (2004), the laws are difficult to enforce, in particular because the spammers are very much fly-by-night creatures.

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In sum, it is interesting to note that the economics of attention seen as a ramification of information theory conveys two conflicting rationales for economic agents, depending on whether it focuses on the user or the provider of information: on one side, there are economic and management models that analyze how it is possible for firms to capture the attention of customers or audiences in order to make money from it; on the other side, one finds analyses that focus on the overload of information from the viewpoint of consumers and provide solutions in order to protect the attention of users from information overload and pollution. Kessous, Mellet and Zouinar (2010), who adopt an economic sociology perspective, point out this discrepancy in the literature and interpret effective innovations in the digital economy as attempts to reconcile customer relationship (CRM26) and vendor relationship (VRM27) management practices. As already mentioned, the economic literature on attention also includes approaches that borrow from cognitive psychology and characterize limited attention as a justification for near-rational or bounded rational behaviors.

2.2. Attention and ‘bounded’ rationality The other strand of literature on attention economics is tightly related to the heritage of Herbert Simon. As well known, this heritage has given rise to two different interpretations depending on which part of the work of Simon is focused on: the pars destruens, criticizing neoclassical view, or the pars construens, consisting of an attempt to model behavior in a more realistic way (cf. Rizzello 1999). 26

CRM is a widely implemented model for managing a company’s interactions with customers, clients, and sales prospects. It involves using technology to organize, automate, and synchronize business processes— principally sales activities, but also those for marketing, customer service, and technical support. The overall goals are to find, attract, and win new clients; nurture and retain those the company already has; entice former clients back into the fold; and reduce the costs of marketing and client service 27

AttentionTrust provides a good example of VRM practices. It consists of a set of principles to govern the attention economy on the self-ownership of the data we create, and specialized software to regulate their use. Specifically, AttentionTrust believes that we all have the right 1) to own at least a copy of our data, 2) to store that data where we want and move it when we want, 3) to exchange it for something of value to us, and 4) to know what others intend to do with our data, so that we can make informed decisions about who should have access to it. (http://www.attentiontrust.org/blog). More generally, VRM is a category of business activity made possible by software tools that provide customers with both independence from vendors and better means for engaging with vendors. The term was coined by Mike Vizard on a Gillmor Gang podcast on September 1, 2006, in a conversation with Doc Searls about the project Searls had recently started as a fellow at the Berkman Center for Internet & Society at Harvard University. It was conceived as the necessary complement of CRM.

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According to the first interpretation, bounded rationality is seen as a limitation to human rationality. This is the line privileged by Kahneman and Tversky in the debate on heuristics and bias when they considered that experimental findings represented deviations from the norm of rationality conveyed by expected utility theory. By contrast, the second interpretation implies that bounded rationality is seen as an adaptive capacity. This conception is endorsed by the stream on ‘ecological rationality’ (Smith, Nobel Lecture 2002; Gigerenzer and Todd 1999) according to which fast, information-economizing and frugal heuristics based on salient rules can be efficient means of reasoning28. In such a perspective, rationality is contingent to the institutional environment and can only be measured in an evolutionary perspective. To be sure, the emerging macroeconomic literature on rational inattention we have hinted at in the introduction is clearly to be related to the first interpretation. But, unlike former attempts in terms of adaptive expectations, assuming rational inattention or limited attention provides microfoundations for economic behavior that look enough like the familiar rational expectation assumption to ensure usefulness and tractability, while the implications for policy are different enough to be interesting (Sims 2003, p. 1). For instance, Akerlof, Dickens and Perry (2000) show that assuming near-rational wage and price setting in macroeconomic modeling does not impair the robustness of the results and is consistent with some empirical findings. On the other hand, the assumption of limited attention is based on observations that have been documented by Shiller (1997): people usually misperceive effective real (as opposed to nominal) changes either because inflation is low and therefore, not a matter of focal awareness or because their attention is focus on local concerns and therefore, not taking into account pay available to them in alternative jobs contrary to what general equilibrium theory postulates they do (Shiller, 1997, pp. 31-32). Shafir, Diamond, and Tversky (1997) reach similar conclusions. In one vignette, which they related to respondents, these authors draw a contrast between Ann, who receives a 2 percent nominal salary increase at zero inflation, and Barbara, who gets a 5 percent nominal salary increase at 4 percent inflation. Most respondents correctly considered that Ann would be better off economically, but they

28

The « heuristics and biais » program of Kahneman and Tversky (cf. Tversky and Kahneman, 1974) refers to a conception of rationality that permits to preserve Savage’s (1954) theory of choice under uncertainty and founded behavioural economics, which may be described as “a set of exceptions that modifies but leaves intact the canonical model of rational choice, not least since it is irrational to suppose that people in general behave irrationally.” (The Economist, 29-04-2006). On the other hand, the “fast and frugal heuristics” program (Gigerenzer and Goldstein 1996) violates fundamental tenets of classical rationality. In particular, the assumption that individuals neither look up nor integrate all information conveys a context-dependent conception of rationality that Vernon Smith will later label ‘ecological rationality’, which refers to the effectiveness of a behavioral rule within its ecological context (Vernon Smith’s Nobel Lecture 2002).

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also said that Barbara would be happier and less likely to leave her job. In a slightly different way Reis (2006b) assumes that producers29 face costs of acquiring, absorbing and processing information. “When the producer does obtain information, conditional on it he or she decides whether to set prices or quantities, which price to charge or which quantities to sell for the duration of the plan, and next to plan.” (Reis, 2006b, 795). Those assumptions and findings have several important implications: First, they imply that a not too low positive rate of inflation should permit a higher level of employment to be sustained, at a cost which would be rather small. Second, they suggest that if inflation increases, the costs of being less than perfectly rational about it should also rise, inducing people to switch their behavior to take inflation into full account. And third, if higher satisfaction at low rates of inflation leads to higher morale, less shirking, higher productivity, and less turnover, then firms face a different efficiency wage constraint at low rates of inflation than they face at either zero inflation or at high rates of inflation, when worker’s attitudes toward inflation may become more rational. Therefore, there should be a positive but low optimal rate of inflation that minimizes the sustainable level of unemployment. In the same vein, Falkinger (2008) develops a general equilibrium model based on empirical research comparing information-rich and information-poor economies. Explicit reference to Simon’s work is made. In particular, Simon’s idea that information wealth implies a poverty of attention is further explored by using a framework where consumers are conceived as passive signal receivers whereas information providers are seeking to catch their attention by sending messages. Falkinger also refers to Kahneman’s dual-task approach by considering that individuals are endowed with a limited mental capacity. How they (voluntarily) process an additional signal depends on the spare capacity left after the load imposed by exposure to other signals. Moreover, there exists a minimum (marginal) strength of a message in order for it to be perceived by the consumers. When total signal exposure lies below a certain level, there is no interference between different signals. Beyond this point, capacity limits lead to such interference. Falkinger concludes that information-rich economies characterized as of lacking enough attention (contrary to information-poor economies) reach an inefficient equilibrium due to attention-seekers engaging in wasteful signaling in the competition for attention. In addition, Falkinger notes that there may be consequences for welfare to the extent that the set of information attended to in information-rich economies is not guaranteed to be optimal. 29

In Reis (2006a) the consumers are considered as having a limited attention.

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The second interpretation of limited attention derived from bounded rationality is embodied in a second series of theoretical and experimental developments, which focus on attention allocation in problem solving and stress the importance of processes in decision making. The experimental contributions (see Camerer et al. 1993, Camerer and Johnson 2004, CostaGomes 2001 2006, Gabaix et al. 2006) use the ‘Mouselab’ programming language to measure subjects’ information acquisition. Information is hidden behind boxes on a computer screen and subjects have to use the computer mouse to open (or close) the boxes in order to get (costly) information that helps solving a problem (of income maximization) in a given limited period of time. On the one hand, Mouselab records permit to know the order and duration of information acquisition. On the other hand, since one screen box can be open at any time, it is possible to know what information is acquired on a second-by-second basis throughout the experiment. Gabaix et al. (2006) provide a step further by testing a theoretical process-based model of cognition based on partially myopic cost-benefit calculations which they label the Directed Cognition (DC) model (Gabaix and Laibson 2005). This model predicts rather well experimental findings using the Mouselab technology. However, experiments also reveal a deviation from the DC model by supporting the existence of some heuristics like the “box heuristic”, namely, the tendency for subjects to become more and more likely to end an analysis of a problem the more boxes they open holding fixed the economic benefit of additional analysis. This means that to a certain extent, subjects display a partial insensitivity to the particular circumstances of the problem they face, a cognitive bias similar to what Camerer and Lovallo (1999) have labeled “system neglect”. This literature also parallels earlier work on the notion of accessibility and salience by Kahneman. In the Kahneman’s dual cognitive system based on the distinction between intuition (system 1) and reasoning (system 2)30, accessibility, i.e., “the ease with which particular mental contents come to mind” (Higgins 1996 quoted by Kahneman in his 2002 Nobel Lecture, Kahneman 2003, p. 1452) is conceived as cumulative: experimental evidence shows that the more a person acquires information and competence in a particular domain, the more he (or she) becomes able to recall and use part of his knowledge. In Kahneman’s own terms: “The acquisition of skill selectively increases the accessibility of useful responses and of productive ways to organize information. The master chess player does not see the same board as the novice, and the skill of visualizing the tower that could be built from an array of

30

As noted by Egidi (2012, p. 205), this distinction was first introduced by Schneider and Shiffrin (1977).

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blocks could surely be improved by prolonged practice. (Kahneman in his Nobel Lecture, Kahneman 2003, p. 1453). This implies that accessibility has different levels and that some operations demand more mental efforts than others. Moreover, accessibility is largely dependent on salience, especially in the intuitive ‘system 1’: “Physical salience also determines accessibility: if a larger green letter and a small blue letter are shown at the same time, ‘green’ will come to mind first. However, salience can be overcome by deliberate attention: an instruction to look for the smaller letter will enhance the accessibility of all its features” (Kahneman, Nobel Lecture 2002, 2003, p. 1453). From this quotation we understand that salience is a key feature of accessibility but that it may easily be manipulated by directing attention to specific features that either give access or hide others. In the Gorilla experiment of Simons and Chabris (1999), people are told to count the number of passes between players wearing white. The results of this experiment suggest that the likelihood of noticing an unexpected object (here the Gorilla), depends on the similarity of that object to other objects in the display and on how difficult the priming monitoring task is. One could imagine an experimenter to tell slightly different instructions, e.g. to count the number of passes between players wearing black instead of white T-shirts and see whether the similarity in terms of color (black) between the Gorilla and the T-shirts enhances the accessibility to the Gorilla or not. Another variant of the Gorilla experiment has been made using ‘subliminal priming’ of people to race by showing them stereotypically black and white names. When subsequently shown the ‘invisible gorilla’ video, “only 45% of the participants exposed to the White names noticed the gorilla. But 70% of the participants who saw the Black names noticed the gorilla.”31 In sum, Kahneman’s concept of accessibility is related to the notion of stimulus, salience, selective attention, and response activation or priming. Finally, salience is not a purely individual characteristic. It also happens at the collective level as the game “target the two” of Cohen and Bacdayan (1994) and Egidi and Narduzzo (1997) as well as experiments by Mehta, Starmer and Sugden (1994) illustrate. In the next section, we suggest a research agenda that derives from this promising strand of the literature.

31

http://www.stanford.edu/group/gender/cgi-bin/wordpressblog/2011/07/the-continued-dehumanization-ofblacks/

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3. Research agenda on the “economics of attention” and conclusion

The surveyed literature on the economics of attention shows clearly that there does not exist a unified theoretical framework in order to deal with the notion of attention in economics. In this section, we attempt to define a research agenda for future developments on the role of attention in economic decisions by focusing on three different levels: individual, organizational and social.

3.1. At the individual level A preliminary distinction needs to be made between ‘paying attention to someone’ and ‘paying attention to something’. In the first case and in compliance with the theoretical literature on others-regarding preferences, individuals are no more supposed to be indifferent to others. Moreover, as evidenced by experiments on bargaining games, the level of generosity of agents is context-dependent (see e.g. Levitt and List 2007 for a comparison between laboratory and field experiments). By the same token, it could be conjectured that the attention that people pay to others varies according to the setting (competitive vs. cooperative) or the social distance (akin vs. stranger). In the case of paying attention to something and assuming limited attention, it is important to know first, what is the extend of the attention scarcity and second, how individuals deals with it. The first question is linked to the idea that individuals, as in Camerer and Johnson (2004), do not search for the same information because they vary in the way they solve a problem. The second question concerns the variety of alternative uses of a given information depending on the problem that is faced. Several directions of research follow from these questions. A first line of research could be to explore the various ways an individual pays attention to somebody or to something according to different parameters. As an example, it is possible to run experiments that make people competing or cooperating and investigate whether it has an impact on the strength of their attention to others. In order to test for the strength, it would be necessary to run experiments where the degree of social distance between players can be controlled (in terms of gender, age and activity). A possible treatment could consist in matching a group of old people with a group of young people. A second direction could be to identify and measure different kinds of attentional determinants. For instance, one can consider that attention paid to something depends on the nature of the problem to be solved, the type of performance index, the salience of a signal and the emotional context. As for the first determinant, the replication of Camerer 18

and Johnson (2004)’s experiments could be a means to test for the type of problem to be solved. As for the second, it could be interesting to run experiments where the elapsed time and, alternatively, the correctness of the answer given to a problem would constitute the performance indices. As for the third, the question amounts to evaluate how strong a signal must be in order to have an impact on behavior and how it competes with other signals. In essence, this would provide an empirical test of Falkinger (2008) model which involves the determination of a minimum of the strength of a signal in order for the information to be perceived by the consumers. Finally, it could be interesting to analyze the relationships between emotion and attention. For instance, experiments using trash vs. sweet stimuli before subjects play a given game could be run. Ultimately, these investigations should contribute to increased knowledge of relevant dimensions of attention at the individual level. It could possibly lead to the definition of an individual’s utility function that takes into account the fact that attention is bounded and that its strength and direction depend on a set of factors that are possible to identify by means of controlled experiments.

3.2. At the organizational level The implications of attention scarcity for firm structure are linked with how attention coordination of heterogeneous individuals’ attention happens. Because cues have asymmetric salience and are interpreted differently (see Rerup, 2010), it is important to analyse 1) the way(s) individuals converge in terms of the attention they pay on the same or different information and 2) how they succeed in coordinating their interpretation in order to take a common decision. Accordingly a first direction could be to study the way individuals pay attention to the same information, in what context they pay an equal or unequal attention, and the way they give attention to complementary information assuming that they have to take a common decision. Experiments could be run, where first individuals have the same sets of information in terms of price and quality of a good and have to decide collectively whether or not to buy it and second, they have sets of information concerning either the price or the quality of a good and have to decide collectively whether or not to buy it.

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Another perspective of research could be to look at the way individuals’ attention converges towards a solution when these individuals have to coordinate their actions. Accordingly people would have to play games with different sets of information and different ways of evaluating their performance. As in a moral hazard model, people have private information and one can investigate 1) the conditions under which an optimal contract can be proposed by a principal to his/her agents; 2) whether the principal is induced or not to screen hidden actions; and 3) if the agents tend or not to signal their information if they may benefit from this signaling. In these experiments, attention scarcity would be assumed by introducing a limited time for subjects to decide.

3.3. At the social level Unlike the individual and organizational levels, at the social level, individuals are not consciously willing to take a collective action. They only undertake to solve a problem of coordination. There is now an important literature on focal points and salience (Schelling, 1978; Bacharach and Bernasconi, 1997; Sugden, 1995, 2011) in order to explain the emergence of a solution when facing a coordination problem. Basically the idea is to explain how people solve social dilemma that are characterized by the absence of equilibrium (i.e. the fashion game played sequentially) or by the presence of multiple (i.e. the pure coordination game) or sub-optimal equilibrium (i.e. the prisoner dilemma). The objective would be here to test the theoretical results that this literature has produced. As an example, it could be possible to use pure coordination games where some information is added in order for individuals to discriminate between different possible solutions. Another possibility would be to test for the emergence of a mixed equilibrium in a battle of sexes game when the information sets are given to people playing the game. This is indeed not far from Bacharach and Bernasconi (1997) experiments of the Variable Frame Theory of focal points in matching games. Another line of research could be to combine explanations given by economists and other social scientists in order to explain the convergence of individuals’ attention toward collective attention. In social philosophy for instance there are recent works due to Gilbert (1989) or Tuomela (2000) that try to explain the emergence of collective action by considering that “collective action problems typically have the structure of a Prisoner's Dilemma game or a Chicken game” (Tuomela, 2001, p.3). From a different perspective, sociologists emphasize that joint attention is a mental condition for interactive cooperation to emerge. Accordingly it 20

might be interesting to compare and try to integrate both explanations given by sociologists and economists of the emergence of collective action as based on collective attention.

Acknowledgments We thank warmly Roger Koppl for his comments and suggestions on an early version of this chapter presented at the Annual Conference of the Society for the Development of Austrian Economics held in Washington DC, 19-21 November 2011.

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DOCUMENTS DE TRAVAIL GREDEG PARUS EN 2012 GREDEG Working Papers Released in 2012

2012-01 Frédéric Marty Les clauses environnementales dans les marchés publics : perspectives économiques 2012-02 Christophe Charlier Distrust and Barriers to International Trade in Food Products: An Analysis of the US- Poultry Dispute 2012-03 Gérard Mondello The Equivalence of Strict Liability and Negligence Rule: A Trompe-l’Œil Perspective 2012-04 Agnès Festré & Pierre Garrouste Somebody May Scold You! A Dictator Experiment 2012-05 Dorian Jullien & Nicolas Vallois A Probabilistic Ghost in the Experimental Machine 2012-06 Gérard Mondello Ambiguity, Agency Relationships, and Adverse Selection 2012-07 Flora Bellone, Kozo Kiyota, Toshiyuki Matsuura, Patrick Musso & Lionel Nesta International Productivity Gaps and the Export Status of Firms: Evidence from France and Japan 2012-08 Tiziana Assenza & Domenico Delli Gatti E. Pluribus Unum: Macroeconomic Modelling for Multi-Agent Economies 2012-09 Catherine Guillemineau Financial Reforms, International Financial Flows, and Growth in Advanced Economies 2012-10 Dino Borie Social Decision Theory and Non-Strategic Behaviour 2012-11 Edward Lorenz Social Capital and Enterprise Innovative Performance: A Multi-Level Analysis of Developing Nations 2012-12 Agnès Festré & Pierre Garrouste The ‘Economics of Attention’: A New Avenue of Research in Cognitive Economics