Rationally Inattentive Preferences
44 Pages Posted: 5 Jun 2013 Last revised: 30 Dec 2017
Date Written: December 20, 2014
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 ) and temporal resolution of uncertainty (Kreps and Porteus ), 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: Suggested Citation