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Predicting Choice from Information Costs

Author

Listed:
  • Elliot Lipnowski
  • Doron Ravid

Abstract

An agent acquires a costly flexible signal before making a decision. We explore to what degree knowledge of the agent's information costs helps predict her behavior. We establish an impossibility result: learning costs alone generate no testable restrictions on choice without also imposing constraints on actions' state-dependent utilities. By contrast, choices from a menu often uniquely pin down the agent's decisions in all submenus. To prove the latter result, we define iteratively differentiable cost functions, a tractable class amenable to first-order techniques. Finally, we construct tight tests for a multi-menu data set to be consistent with a given cost.

Suggested Citation

  • Elliot Lipnowski & Doron Ravid, 2022. "Predicting Choice from Information Costs," Papers 2205.10434, arXiv.org, revised Apr 2023.
    • Handle: RePEc:arx:papers:2205.10434
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    File URL: http://arxiv.org/pdf/2205.10434
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    References listed on IDEAS

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    1. Andrew Caplin & Mark Dean, 2013. "Behavioral Implications of Rational Inattention with Shannon Entropy," NBER Working Papers 19318, National Bureau of Economic Research, Inc.
    2. Dewan, Ambuj & Neligh, Nathaniel, 2020. "Estimating information cost functions in models of rational inattention," Journal of Economic Theory, Elsevier, vol. 187(C).
    3. Robert J. Aumann, 1995. "Repeated Games with Incomplete Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011476, December.
    4. Hong, Chew Soo & Karni, Edi & Safra, Zvi, 1987. "Risk aversion in the theory of expected utility with rank dependent probabilities," Journal of Economic Theory, Elsevier, vol. 42(2), pages 370-381, August.
    5. Chambers, Christopher P. & Liu, Ce & Rehbeck, John, 2020. "Costly information acquisition," Journal of Economic Theory, Elsevier, vol. 186(C).
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    Cited by:

    1. Mark Whitmeyer & Kun Zhang, 2023. "Redeeming Falsifiability?," Papers 2303.15723, arXiv.org, revised Jan 2026.
    2. Alex Bloedel & Tommaso Denti & Luciano Pomatto, 2025. "Modeling information acquisition via f-divergence and duality," Papers 2510.03482, arXiv.org.
    3. Duarte Gonc{c}alves, 2024. "Speed, Accuracy, and Complexity," Papers 2403.11240, arXiv.org, revised Jun 2024.
    4. Naudé, Wim, 2023. "Artificial Intelligence and the Economics of Decision-Making," IZA Discussion Papers 16000, IZA Network @ LISER.

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