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Foundations for optimal inattention

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  • Ellis, Andrew

Abstract

This paper models an agent who has a limited capacity to pay attention to information and thus conditions her actions on a coarsening of the available information. An optimally inattentive agent chooses both her coarsening and her actions by maximization of an underlying subjective expected utility preference relation, net of a cognitive cost of attention. The main result axiomatically characterizes the conditional choices of actions by an agent that are necessary and sufficient for her behavior to be seen as if it is the result of optimal inattention. Observing these choices permits unique identification of the agent's utility index, the information to which she pays attention, her attention cost and her prior whenever information is costly.

Suggested Citation

  • Ellis, Andrew, 2018. "Foundations for optimal inattention," Journal of Economic Theory, Elsevier, vol. 173(C), pages 56-94.
    • Handle: RePEc:eee:jetheo:v:173:y:2018:i:c:p:56-94
    DOI: 10.1016/j.jet.2017.10.004
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    More about this item

    Keywords

    Inattention; Optimal inattention; Conditional choice;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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