Markowitz meets Kahneman: Portfolio selection under divided attention

This paper explores how the scarcity of cognitive resources affects portfolio decisions. I consider an economy where investors allocate mental effort to learn about the mean return of a number of assets, by retrieving information from a stock of memories. As a result, parameter uncertainty arises endogenously. I characterize the optimal division of attention and the optimal portfolios and I show that limited attention might provide interesting insight into the equity home bias puzzle.