Subjective Dynamic Information Constraints

58 Pages Posted: 4 May 2016 Last revised: 18 May 2016

David Dillenberger

University of Pennsylvania - Department of Economics

R. Vijay Krishna

Florida State University - Department of Economics

Philipp Sadowski

Duke University - Department of Economics

Date Written: April 3, 2016

Abstract

We axiomatize a new class of recursive dynamic models that capture subjective constraints on the amount of information a decision maker can obtain, pay attention to, or absorb, via a Markov Decision Process for Information Choice (MIC). An MIC is a subjective decision process that specifies what type of information about the payoff-relevant state is feasible in the current period, and how the choice of what to learn now affects what can be learned in the future. The constraint imposed by the MIC is identified from choice behavior up to a recursive extension of Blackwell dominance. All the other parameters of the model, namely the anticipated evolution of the payoff-relevant state, state dependent consumption utilities, and the discount factor are also uniquely identified.

Keywords: Dynamic Preferences, Recursive Information Constraints, Recursive Blackwell Dominance, Rational Inattention, Subjective Markov Decision Process, Familiarity Bias

JEL Classification: D80, D81, D90

Suggested Citation

Dillenberger, David and Krishna, R. Vijay and Sadowski, Philipp, Subjective Dynamic Information Constraints (April 3, 2016). Economic Research Initiatives at Duke (ERID) Working Paper No. 214; PIER Working Paper No.16-010. Available at SSRN: https://ssrn.com/abstract=2774300

David Dillenberger

University of Pennsylvania - Department of Economics ( email )

160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
United States
215-898-1503 (Phone)

R. Vijay Krishna

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

Philipp Sadowski (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1800 (Phone)

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