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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, 2017. "Foundations for optimal inattention," LSE Research Online Documents on Economics 85334, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:85334
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    File URL: http://eprints.lse.ac.uk/85334/
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    Cited by:

    1. Nick Saponara, 2018. "Bayesian optimism," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(2), pages 375-406, August.
    2. de Oliveira, Henrique & Denti, Tommaso & Mihm, Maximilian & Ozbek, Kemal, 2017. "Rationally inattentive preferences and hidden information costs," Theoretical Economics, Econometric Society, vol. 12(2), May.
    3. Luciano Pomatto & Philipp Strack & Omer Tamuz, 2018. "The cost of information," Papers 1812.04211, arXiv.org, revised Dec 2020.
    4. Zhang, Yuhua & Niu, Yingjie & Wu, Ting, 2020. "Stochastic interest rates under rational inattention," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    5. Frick, Mira, 2016. "Monotone threshold representations," Theoretical Economics, Econometric Society, vol. 11(3), September.
    6. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    7. Sinclair-Desgagné, Bernard, 2019. "Prior knowledge and monotone decision problems," Economics Letters, Elsevier, vol. 175(C), pages 15-18.
    8. Andrew Ellis & Yusufcan Masatlioglu, 2020. "Choice with Endogenous Categorization," Papers 2005.05196, arXiv.org, revised Nov 2020.
    9. Pennesi, Daniele, 2015. "Costly information acquisition and the temporal resolution of uncertainty," Journal of Mathematical Economics, Elsevier, vol. 60(C), pages 115-122.
    10. Aoyama, Tomohito, 2020. "Response time and revealed information structure," Discussion paper series HIAS-E-101, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    11. Matthew Gibson & Jamie T. Mullins & Alison Hill, 2019. "Climate Risk and Beliefs: Evidence from New York Floodplains," Department of Economics Working Papers 2019-02, Department of Economics, Williams College.
    12. Daniele Pennesi, 2020. "Identity and the cost of information," Carlo Alberto Notebooks 610, Collegio Carlo Alberto.
    13. Faruk Gul & Wolfgang Pesendorfer & Tomasz Strzalecki, 2017. "Coarse Competitive Equilibrium and Extreme Prices," American Economic Review, American Economic Association, vol. 107(1), pages 109-137, January.
    14. Tsakas, Elias, 2018. "Robust scoring rules," Research Memorandum 023, Maastricht University, Graduate School of Business and Economics (GSBE).
    15. Andrew Caplin & Mark Dean, 2015. "Revealed Preference, Rational Inattention, and Costly Information Acquisition," American Economic Review, American Economic Association, vol. 105(7), pages 2183-2203, July.
    16. Chambers, Christopher P. & Liu, Ce & Rehbeck, John, 2020. "Costly information acquisition," Journal of Economic Theory, Elsevier, vol. 186(C).
    17. Youichiro Higashi & Kazuya Hyogo & Norio Takeoka, 2020. "Costly Subjective Learning," KIER Working Papers 1040, Kyoto University, Institute of Economic Research.
    18. Mackowiak, Bartosz Adam & Matejka, Filip & Wiederholt, Mirko, 2018. "Survey: Rational Inattention, a Disciplined Behavioral Model," CEPR Discussion Papers 13243, C.E.P.R. Discussion Papers.
    19. Tsakas, Elias, 0. "Robust scoring rules," Theoretical Economics, Econometric Society.
    20. Jawwad Noor & Norio Takeoka, "undated". "Impatience as Selfishness," Boston University - Department of Economics - Working Papers Series WP2018-008, Boston University - Department of Economics.

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    More about this item

    Keywords

    inattention; optimal inattention; conditional choice;

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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