The Option to Pay Attention

Yehuda Izhakian, Hagit Levy-Shalev, Ron Shalev and Emanuel Zur

Abstract

We use a novel dataset of individuals' stock-following over time (watchlists), to examine how the decision to start or stop paying attention to securities is affected by the perceived expected benefit of paying attention. In the view of paying attention as a real option, the value of paying attention decreases in its ambiguity---Knightian uncertainty---and increases in its risk. We find strong supporting evidence to these effects of ambiguity and risk on attention. Furthermore, the overall attention an individual pays to securities decreases in watchlist ambiguity and increases in its risk. These evidence provide new insights into information acquisition and processing decisions.