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Revealed Preference, Rational Inattention, and Costly Information Acquisition

  • Andrew Caplin
  • Mark Dean

We develop a revealed preference test for optimal acquisition of costly information. The test encompasses models of rational inattention, sequential signal processing, and search. We provide limits on the extent to which attention costs can be recovered from choice data. We experimentally elicit state dependent stochastic choice data of the form the tests require. In simple cases, tests confirm that subjects adjust their attention in response to incentives as the theory dictates.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19876.

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Date of creation: Jan 2014
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Handle: RePEc:nbr:nberwo:19876
Note: TWP
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  1. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
  2. Laura Veldkamp & Stijn Van Nieuwerburgh, 2005. "Information Immobility and the Home Bias Puzzle," 2005 Meeting Papers 78, Society for Economic Dynamics.
  3. Ian Crawford, 2010. "Habits Revealed," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1382-1402.
  4. Paola Manzini & Marco Mariotti, 2013. "Stochastic Choice and Consideration Sets," Discussion Paper Series, Department of Economics 201303, Department of Economics, University of St. Andrews.
  5. F. Gul & W. Pesendorfer, 2002. "Random Expected Utility," Princeton Economic Theory Working Papers 497768e9b9fc18361ac0810b3, David K. Levine.
  6. Andrew Caplin & Daniel Martin, 2011. "A Testable Theory of Imperfect Perception," NBER Working Papers 17163, National Bureau of Economic Research, Inc.
  7. Paola Manzini & Marco Mariotti, 2007. "Sequentially Rationalizable Choice," American Economic Review, American Economic Association, vol. 97(5), pages 1824-1839, December.
  8. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February.
  9. Tim Beatty & Ian Crawford, 2010. "How demanding is the revealed preference approach to demand," CeMMAP working papers CWP17/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  10. Varian, Hal R, 1984. "The Nonparametric Approach to Production Analysis," Econometrica, Econometric Society, vol. 52(3), pages 579-97, May.
  11. Andrew Caplin & Mark Dean, 2013. "Behavioral Implications of Rational Inattention with Shannon Entropy," NBER Working Papers 19318, National Bureau of Economic Research, Inc.
  12. Cherchye, L.J.H. & de Rock, B. & Vermeulen, F.M.P., 2011. "The revealed preference approach to collective consumption behavior : Testing and sharing rule recovery," Other publications TiSEM 11c788ab-cf82-4759-a6a8-3, School of Economics and Management.
  13. Alisdair McKay & Filip Matejka, 2011. "Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model," Boston University - Department of Economics - Working Papers Series WP2011-026, Boston University - Department of Economics.
  14. Babur De Los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior," American Economic Review, American Economic Association, vol. 102(6), pages 2955-80, October.
  15. Andrew Caplin & Mark Dean & Daniel Martin, 2011. "Search and Satisficing," American Economic Review, American Economic Association, vol. 101(7), pages 2899-2922, December.
  16. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  17. Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Ozbay, 2009. "Revealed Attention," NajEcon Working Paper Reviews 814577000000000409, www.najecon.org.
  18. Geoffroy de Clippel & Kareen Rozen, 2012. "Bounded Rationality and Limited Datasets: Testable Implications, Identifiability, and Out-of-Sample Prediction," Working Papers 2012-7, Brown University, Department of Economics.
  19. Anton Cheremukhin & Anna Popova & Antonella Tutino, 2011. "Experimental evidence on rational inattention," Working Papers 1112, Federal Reserve Bank of Dallas.
  20. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
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