Decision Making with Rational Inattention

49 Pages Posted: 29 Jul 2012

See all articles by Maximilian Mihm

Maximilian Mihm

New York University (NYU) - Abu Dhabi

Kemal Ozbek

University of St Andrews, School of Economics & Finance

Date Written: July 27, 2012

Abstract

Attention scarcity is a limitation on the ability to incorporate information into actions with state-contingent consequences. In a menu choice setting, we study an axiomatic model of decision making with scarce attention. A decision maker satisfying our axioms acts as if she chooses a joint distribution over a product space of states and signals. The decision maker uses information from the joint distribution to make better ex-post choices from menus, and attention scarcity is reflected in a subjective cost of information. Our focus on ex-ante preferences allows us to identify anticipated attention scarcity from choice behavior, and thereby clarify the decision theoretic foundations of rational inattention models proposed in Sims (1998, 2003).

Keywords: information measure, menu choice, mutual information, rational inattention

JEL Classification: D81, D82, D83

Suggested Citation

Mihm, Maximilian and Ozbek, Kemal, Decision Making with Rational Inattention (July 27, 2012). Available at SSRN: https://ssrn.com/abstract=2118975 or http://dx.doi.org/10.2139/ssrn.2118975

Maximilian Mihm

New York University (NYU) - Abu Dhabi ( email )

Abu Dhabi
United Arab Emirates

Kemal Ozbek (Contact Author)

University of St Andrews, School of Economics & Finance ( email )

Castlecliffe, The Scores
St Andrews, Fife KY16 9AR
United Kingdom

HOME PAGE: http://https://sites.google.com/a/cornell.edu/kemal-ozbek/home

Register to save articles to
your library

Register

Paper statistics

Downloads
186
Abstract Views
1,029
rank
165,147
PlumX Metrics