Insights ¦ The ‘Economics of Attention’: A History of Economic Thought Perspective

Key Take Aways

1. The concept of attention in economic thought is deeply rooted in philosophical and psychological traditions, notably from Herbert Simon and Friedrich Hayek, before entering mainstream economics.

2. Limited attention is recognised as a fundamental cognitive resource, impacting decision-making and organisational structures within financial services.

3. Herbert Simon’s concept of bounded rationality highlights that organisations and individuals can only process a fraction of available information, necessitating heuristics and simplification strategies.

4. Friedrich Hayek’s cognitive psychology indicates that perception and classification are inherently limited, shaping market processes as the realisation of tacit, distributed knowledge rather than explicit data aggregation.

5. Michael Polanyi’s exploration of tacit knowledge and subsidiary awareness underlines the importance of recognising implicit, non-formalised understanding, crucial for risk assessment and strategic cognition.

6. The increased focus on attention economics from 1997 reflects the immense challenges of information overload, which influences consumer behaviour and the effectiveness of financial marketing strategies.

7. Attention scarcity has historically been exploited through advertising and media, becoming a lucrative yet potentially extractive resource subject to regulatory and institutional debate.

8. Modern literature discusses two approaches: one based on Shannon’s information theory, viewing attention as indices of novelty; the other grounded in cognitive psychology, emphasising expectations, salience, and interpretative differences.

9. Behavioural economics’ rise has shifted attention to how cognitive biases, heuristics, and bounded rationality influence economic decisions, with implications for macroeconomic policy and financial stability.

10. The interplay between information overload and asymmetry creates externalities where external parties—such as spam or manipulative advertising—impose costs on individuals’ attention, requiring technological, market-based, and regulatory solutions.

11. Attention management in financial markets and organisations involves synchronising top-down and bottom-up processes, preventing delays in recognising emerging threats and fostering proactive decision-making.

12. Interdisciplinary insights from history, psychology, and management research are necessary to develop institutional frameworks that optimise the allocation and protection of human attention amidst modern information surges.

Key Statistics

• The term ‘economics of attention’ first appeared in 1997 in an online article by Michael Goldhaber, signalling its relatively recent institutionalisation.

• Kahneman (1973) posited that human capacity involves a central resource pool for attention, which is competed for across activities.

• Cherry (1953) demonstrated that when subjects listen to two streams of words in different ears, they can selectively attend to one, illustrating early models of selective attention.

• Hotelling (1938) warned of the monopolisation of attention by commercial interests, suggesting it should be taxed as a limited resource.

• Stroop (1935) study remains one of psychology’s most cited, illustrating the interference effects in processing irrelevant stimulus information.

• Simon (1971) articulated that “what information consumes is rather obvious: it consumes the attention of its consumers,” highlighting the scarcity of attention amidst information abundance.

• The analysis notes that the overload of information can be wasteful, introducing inefficiencies equivalent to economic externalities—particularly in digital economies.

Key Discussion Points

• The historical evolution of the notion of attention from philosophical debates to cognitive and social science insights.

• Herbert Simon’s influential dual focus on structural and cognitive limitations shaping decision-making and organisational design.

• Friedrich Hayek’s perspective on the classification and neural mapping of knowledge as a foundation for understanding economic coordination and market mechanisms.

• Michael Polanyi’s concept of tacit and subsidiary knowledge emphasising non-explicit understanding critical in risk and strategic analysis.

• The increasing realisation since 1997 that attention is a critical — yet scarce — resource, especially important within digital, financial, and information-intensive sectors.

• The dual approaches to attention economics: one grounded in Shannon information theory; the other based on cognitive psychology, expectations, and salience.

• The impact of attention scarcity on market dynamics, advertising, and regulatory policy in financial services.

• The importance of synchronising top-down and bottom-up organisational processes to mitigate delays in recognising systemic threats.

• The role of heuristics and bounded rationality in fostering more realistic models of decision-making in complex markets.

• The risk of externalities such as spam or manipulative advertising imposing costs on individuals’ attention, which calls for regulatory intervention.

• The relevance of interdisciplinary perspectives—psychology, history, philosophy—in shaping better institutional frameworks for managing attention.

• The opportunity for financial organisations to apply insights from behavioural and cognitive research to optimise attention allocation, risk management, and strategic decision-making.

Document Description

This article offers a comprehensive examination of the ‘economics of attention’ from a historical perspective rooted in social sciences and psychology. It traces the origins of attention as a concept from philosophy and psychology, highlights its diffusion into economic thought through key figures like Herbert Simon and Friedrich Hayek, and analyses contemporary debates surrounding attention scarcity in the digital economy. The article critically assesses current literature, distinguishes between different theoretical approaches—information-based and psychology-based—and discusses implications for financial services, decision-making, and policymaking. It advocates for an interdisciplinary approach to develop institutional frameworks that effectively allocate and safeguard human attention amid mounting information overload.