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Rationally Inattentive Behavior: Characterizing and Generalizing Shannon Entropy

Author

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  • Andrew Caplin
  • Mark Dean
  • John Leahy

Abstract

We provide a full behavioral characterization of the standard Shannon model of rational inattention. The key axiom is "Invariance under Compression", which identifies this model as capturing an ideal form of attention-constrained choice. We introduce tractable generalizations that allow for many of the known behavioral violations from this ideal, including asymmetries and complementarities in learning, context effects, and low responsiveness to incentives. We provide an even more general method of recovering attention costs from behavioral data. The data set in which we characterize all behavioral patterns is "state dependent" stochastic choice data.

Suggested Citation

  • Andrew Caplin & Mark Dean & John Leahy, 2017. "Rationally Inattentive Behavior: Characterizing and Generalizing Shannon Entropy," NBER Working Papers 23652, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23652
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    References listed on IDEAS

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    Cited by:

    1. Ludmila Matyskova, 2018. "Bayesian Persuasion with Costly Information Acquisition," CERGE-EI Working Papers wp614, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    2. Adrian Hillenbrand & Svenja Hippel, 2017. "Strategic Inattention in Product Search," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2017_21, Max Planck Institute for Research on Collective Goods.
    3. Benjamin Hébert & Michael Woodford, 2017. "Rational Inattention and Sequential Information Sampling," NBER Working Papers 23787, National Bureau of Economic Research, Inc.
    4. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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