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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
Date of revision:
Handle: RePEc:nbr:nberwo:19876
Note: TWP
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  1. Faruk Gul & Wolfgang Pesendorfer, 2006. "Random Expected Utility," Econometrica, Econometric Society, vol. 74(1), pages 121-146, 01.
  2. Paola Manzini & Marco Mariotti, 2014. "Stochastic Choice and Consideration Sets," Econometrica, Econometric Society, vol. 82(3), pages 1153-1176, 05.
  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 272-98, January.
  4. 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, Tilburg University, School of Economics and Management.
  5. Andrew Caplin & Mark Dean, 2013. "Behavioral Implications of Rational Inattention with Shannon Entropy," NBER Working Papers 19318, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. Andrew Caplin & Daniel Martin, 2013. "A Testable Theory of Imperfect Perception," Levine's Working Paper Archive 786969000000000649, David K. Levine.
  9. Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Information Immobility and the Home Bias Puzzle," Journal of Finance, American Finance Association, vol. 64(3), pages 1187-1215, 06.
  10. 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.
  11. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February.
  12. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
  13. Anton A. Cheremukhin & Anna Popova & Antonella Tutino, 2011. "Experimental evidence on rational inattention," Working Papers 1112, Federal Reserve Bank of Dallas.
  14. Ricardo Reis, 2004. "Inattentive Consumers," Working Papers 135, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  15. Varian, Hal R, 1984. "The Nonparametric Approach to Production Analysis," Econometrica, Econometric Society, vol. 52(3), pages 579-97, May.
  16. Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Ozbay, 2009. "Revealed Attention," NajEcon Working Paper Reviews 814577000000000409,
  17. Ian Crawford, 2010. "Habits Revealed," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1382-1402.
  18. Andrew Caplin & Mark Dean & Daniel Martin, 2011. "Search and Satisficing," American Economic Review, American Economic Association, vol. 101(7), pages 2899-2922, December.
  19. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  20. Paola Manzini & Marco Mariotti, 2007. "Sequentially Rationalizable Choice," American Economic Review, American Economic Association, vol. 97(5), pages 1824-1839, December.
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