The Status Quo and Belief Polarization of Inattentive Agents: Theory and Experiment

Abstract

We show that rational but inattentive agents can become polarized ex ante. We present how optimal information acquisition and subsequent belief formation depend crucially on the agent-specific status quo valuation. Beliefs can systematically—in expectations over all possible signal realizations conditional on the state of the world—update away from the realized truth, and even agents with the same initial beliefs might become polarized. We design a laboratory experiment to test the model's predictions. The results confirm our predictions about the mechanism (rational information acquisition) and its effect on beliefs (systematic polarization), and they provide general insights into demand for information.