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A theory of discrete choice with information costs

Author

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  • Cheremukhin, Anton
  • Popova, Anna
  • Tutino, Antonella

Abstract

We present a theory of discrete choice with information costs that supports deliberate stochastic choice. We use a unique experimental dataset to distinguish between errors arising from limitations on a decision maker's cognitive abilities and conscious disregard of information. Experimental evidence strongly favors the latter explanation. The data also allows us to directly estimate the shape and size of information costs for individual participants. Furthermore, in line with a dynamic extension of our theory, we find that accumulated knowledge of the environment improves response consistency.

Suggested Citation

  • Cheremukhin, Anton & Popova, Anna & Tutino, Antonella, 2015. "A theory of discrete choice with information costs," Journal of Economic Behavior & Organization, Elsevier, vol. 113(C), pages 34-50.
  • Handle: RePEc:eee:jeborg:v:113:y:2015:i:c:p:34-50
    DOI: 10.1016/j.jebo.2015.02.022
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Allred, Sarah & Duffy, Sean & Smith, John, 2016. "Cognitive load and strategic sophistication," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 162-178.
    2. Antonella Tutino & Anton Cheremukhin, 2012. "Asymmetric Firm Dynamics under Rational Inattention," 2012 Meeting Papers 161, Society for Economic Dynamics.
    3. Denti, Tommaso & Mihm, Maximilian & de Oliveira, Henrique & Ozbek, Kemal, 2017. "Rationally inattentive preferences and hidden information costs," Theoretical Economics, Econometric Society, vol. 12(2), May.
    4. Cheremukhin, Anton & Tutino, Antonella, 2016. "Information rigidities and asymmetric business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 142-158.
    5. Luo, Yulei & Nie, Jun & Wang, Gaowang & Young, Eric R., 2017. "Rational inattention and the dynamics of consumption and wealth in general equilibrium," Journal of Economic Theory, Elsevier, vol. 172(C), pages 55-87.

    More about this item

    Keywords

    Bounded rationality; Information theory; Rational inattention; Discrete choice; Behavioral experiments;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory

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