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An Equivalence between Rational Inattention Problems and Complete-Information Conformity Games

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  • Pavel Ilinov
  • Ole Jann

Abstract

We consider two types of models: (i) a rational inattention problem (as known from the literature) and (ii) a conformity game, in which fully informed players find it costly to deviate from average behavior. We show that these problems are equivalent to each other both from the perspective of the participant and the outside observer: Each individual faces identical trade-offs in both situations, and an observer would not be able to distinguish the two models from the choice data they generate. We also establish when individual behavior in the conformity game maximizes welfare.

Suggested Citation

  • Pavel Ilinov & Ole Jann, 2022. "An Equivalence between Rational Inattention Problems and Complete-Information Conformity Games," CERGE-EI Working Papers wp719, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp719
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp719.pdf
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    References listed on IDEAS

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    1. Assar Lindbeck & Sten Nyberg & Jörgen W. Weibull, 1999. "Social Norms and Economic Incentives in the Welfare State," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 1-35.
    2. B. Douglas Bernheim & Christine L. Exley, 2015. "Understanding Conformity: An Experimental Investigation," Harvard Business School Working Papers 16-070, Harvard Business School.
    3. Filip Matêjka & Alisdair McKay, 2015. "Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model," American Economic Review, American Economic Association, vol. 105(1), pages 272-298, January.
    4. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-877, October.
    5. Andrew Caplin & Mark Dean & John Leahy, 2019. "Rational Inattention, Optimal Consideration Sets, and Stochastic Choice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(3), pages 1061-1094.
    6. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    7. J. Aczel & J. Pfanzagl, 1967. "Remarks on the measurement of subjective probability and information," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 11(1), pages 91-105, December.
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    Cited by:

    1. Avoyan, Ala & Romagnoli, Giorgia, 2023. "Paying for inattention," Economics Letters, Elsevier, vol. 226(C).

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    More about this item

    Keywords

    conformity; equivalence; rational inattention; social norms;
    All these keywords.

    JEL classification:

    • 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
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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