Rationally Inattentive Preferences

44 Pages Posted: 5 Jun 2013 Last revised: 30 Dec 2017

See all articles by Henrique de Oliveira

Henrique de Oliveira

Penn State University

Tommaso Denti

Massachusetts Institute of Technology (MIT) - Department of Economics

Maximilian Mihm

New York University (NYU) - Abu Dhabi

Kemal Ozbek

University of St Andrews, School of Economics & Finance

Date Written: December 20, 2014

Abstract

This paper develops a decision-theoretic framework to study rational inattention (Sims [1998, 2003]). We provide an axiomatic characterization that relates rationally inattentive behavior to attitudes towards flexibility (Kreps [1979]) and temporal resolution of uncertainty (Kreps and Porteus [1978]), and describe a procedure to identify model parameters from observable choice data. Specifically, we show how attention costs – the key parameter in rational inattention models – can be measured using willingness-to-pay data, which can be collected in dynamic choice environments or generated in experimental settings.

Keywords: Blackwell order, flexibility, information acquisition, menu choice, rational inattention, temporal resolution of uncertainty

JEL Classification: D81, D83

Suggested Citation

de Oliveira, Henrique and Denti, Tommaso and Mihm, Maximilian and Ozbek, Kemal, Rationally Inattentive Preferences (December 20, 2014). Available at SSRN: https://ssrn.com/abstract=2274286 or http://dx.doi.org/10.2139/ssrn.2274286

Henrique De Oliveira

Penn State University ( email )

408 Kern building
University Park, PA 16802
United States

HOME PAGE: http://henriquedeoliveira.com/

Tommaso Denti (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

Maximilian Mihm

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

Abu Dhabi
United Arab Emirates

Kemal Ozbek

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

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