A theory of discrete choice with information costs

Asymmetric Firm Dynamics under Rational Inattention

“…8 Finally, our mechanism generates counter-cyclical variations in pro…t margins. 9 Unlike the mechanisms described in the literature, most of the business cycle adjustment in our model occurs on the exit (rather than entry) margin. This is consistent with evidence on the behavior of establishment entry and exit rates in the U.S. economy, which this paper summarizes.…”

“…2) nature determines tastes; fv it ; i = 1; :::; K t g; 3) …rms process information and form beliefs; 4) based on this information each …rm decides whether to stay in the market or exit; 5) the combination of exit decisions determines aggregate variables and pro…ts of individual …rms in general equilibrium according to equation (9).…”

“…This approach has already proven useful in Tutino (2013)'s analysis of asymmetries in consumption-savings decisions. 9 The idea of competitive wars was introduced by Rotemberg and Saloner (1986 details.…”

Targeted Search in Matching Markets

“…A more targeted search, or a probability distribution that is more concentrated on a particular group of agents, is associated with a higher cost, as the agent needs to exert more effort in deciding whom to contact. The probability distribution needs to satisfy two properties: 1) By the nature of the choice between a finite number of options, the distribution must be discrete and 2) for strategic motives to play a role, agents should be able to vary each element of the distribution and consider small devi- 8 Also, see Yang's (2013) model of "targeted" search that assumes random search within perfectly distinguishable market segments.…”

“…Matches between inferior and superior types may form if one of the partners cannot afford to wait for their best match and decides to settle for an inferior one (see Eeckhout (1999), Shimer and Smith (2000), Adachi (2003)). 3 We borrow our cost specification from the literature on discrete choice under information frictions, see Cheremukhin et al (2015) and Matejka and McKay (2015). payoff function are highly correlated.…”