Rationally inattentive preferences and hidden information costs

Abstract

We show how information acquisition costs can be identified using observable choice data. Identifying information costs from behavior is especially relevant when these costs depend on factors-such as time, effort, and cognitive resources-that are difficult to observe directly, as in models of rational inattention. Using willingness-to-pay data for opportunity sets-which require more or less information to make choices-we establish a set of canonical properties that are necessary and sufficient to identify information costs. We also provide an axiomatic characterization of the induced rationally inattentive preferences and show how they reveal the amount of information a decision-maker acquires.Keywords. Information costs, Blackwell order, information acquisition, menu choice, rational inattention. JEL classification. D81, D83. This paper merges our independent works, previously circulated as "Axiomatic Foundations for Rational Inattention" (de Oliveira), "Rational Inattention: A Decision-Theoretic Perspective" (Denti), and "Decision Making with Rational Inattention" (Mihm and Ozbek). We are grateful to Larry Blume, Simone CerreiaVioglio, Eddie Dekel, Fabio Maccheroni, Paola Manzini, Massimo Marinacci, Marco Mariotti, Tapan Mitra, Todd Sarver, and Joerg Stoye for invaluable guidance and support. We also thank Nabil Al-Najjar, Andrew Caplin, Aaron Bodoh-Creed, Giulia Brancaccio, Enrico Cantoni, Mark Dean, David Easley, Ludovica Gazzé, Peter Klibanoff, John Leahy, Samreen Malik, Jawwad Noor, Efe Ok, Pietro Ortoleva, Luciano Pomatto, Debraj Ray, Marciano Siniscalchi, Juuso Toikka, Mirko Wiederholt, Muhamet Yildiz, various seminar and conference participants, the editor and three anonymous reviewers for helpful comments and suggestions.

Discrete Choice and Rational Inattention: A General Equivalence Result

“…In this section we show that κ S (p (·) , µ) does indeed possess two reasonable and desirable properties of cost functions that have been discussed in the existing literature (cf. de Oliveira, Denti, Mihm, Ozbek (2015), Hébert and Woodford (2016)), thus providing normative support for the GERI framework.…”

Mood-driven choices and self-regulation

“…The self-regulation model also shares features with variational models, first introduced in Maccheroni, Marinacci, and Rustichini [2006]. The closest models in the menu-choice literature with a similar structure are the costly contemplation model in Ergin and Sarver [2010] and the rational inattention model in De Oliveira, Denti, Mihm, and Ozbek [2017]. In particular, the IDC axiom, which reveals the hidden action problem in our model, is related to the Aversion to Contingent Planning (ACP) axiom used to characterize these other models.…”

Consumer Choice Under Limited Attention When Options Have Different Information Costs

“…In a similar vein, Oliveira et al (2016) introduce a method to elicit preferences and to estimate the information cost function of a rationally inattentive decision maker. Their setup works for what they call canonical information cost functions, to which our generalized Shannon information cost function belongs.…”