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Academic Journal of Business & Management, 2024, 6(4); doi: 10.25236/AJBM.2024.060438.

Dynamic Attention Allocation in Risky Asset Market


Chen Ai1, Tenglong Wang2

Corresponding Author:
Chen Ai

1Department of Mathematics, Columbia University, New York, NY 10025, United States

2Department of Finance, Shanghai University, Shanghai, 200444, China


This paper introduces a noisy rational expectation model that incorporates the dynamics between information acquisition and attention allocation. The model, differentiated from standard frameworks, allows investors to endogenously choose their attention allocation to multiple noisy signals, enabling an analysis of the dynamic interaction. A significant aspect of the model is the correlation between investors' attention allocation and the anticipated value of the terminal payoff under a risk-neutral measure. The model demonstrates that the marginal cost of attention increases with attention allocation, and this cost is proportional to the expected value of a certain variance under the risk-neutral measure.


Endogenous Attention Allocation, Risk-Neutral Measure, Rational Expectation

Cite This Paper

Chen Ai, Tenglong Wang. Dynamic Attention Allocation in Risky Asset Market. Academic Journal of Business & Management (2024) Vol. 6, Issue 4: 262-268. https://doi.org/10.25236/AJBM.2024.060438.


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