Rationally inattentive preferences and hidden information costs

Henrique de Oliveira, Tommaso Denti, Max Mihm, Kemal Ozbek

Research output: Contribution to journalArticle

Abstract

We show how information acquisition costs can be identified using observable choice data. Identifying information costs from behavior is especially relevant when these costs depend on factors—such as time, effort, and cognitive resources—that are difficult to observe directly, as in models of rational inattention. Using willingness-to-pay data for opportunity sets—which require more or less information to make choices—we establish a set of canonical properties that are necessary and sufficient to identify information costs. We also provide an axiomatic characterization of the induced rationally inattentive preferences and show how they reveal the amount of information a decision-maker acquires.

Original languageEnglish (US)
Pages (from-to)621-654
Number of pages34
JournalTheoretical Economics
Volume12
Issue number2
DOIs
StatePublished - May 1 2017

Fingerprint

Information costs
Costs
Hidden information
Information acquisition
Axiomatic characterization
Rational inattention
Decision maker
Willingness-to-pay

Keywords

  • Blackwell order
  • information acquisition
  • Information costs
  • menu choice
  • rational inattention

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

Rationally inattentive preferences and hidden information costs. / de Oliveira, Henrique; Denti, Tommaso; Mihm, Max; Ozbek, Kemal.

In: Theoretical Economics, Vol. 12, No. 2, 01.05.2017, p. 621-654.

Research output: Contribution to journalArticle

de Oliveira, Henrique ; Denti, Tommaso ; Mihm, Max ; Ozbek, Kemal. / Rationally inattentive preferences and hidden information costs. In: Theoretical Economics. 2017 ; Vol. 12, No. 2. pp. 621-654.
@article{9f178a39661345cab98b70d109ac50fa,
title = "Rationally inattentive preferences and hidden information costs",
abstract = "We show how information acquisition costs can be identified using observable choice data. Identifying information costs from behavior is especially relevant when these costs depend on factors—such as time, effort, and cognitive resources—that are difficult to observe directly, as in models of rational inattention. Using willingness-to-pay data for opportunity sets—which require more or less information to make choices—we establish a set of canonical properties that are necessary and sufficient to identify information costs. We also provide an axiomatic characterization of the induced rationally inattentive preferences and show how they reveal the amount of information a decision-maker acquires.",
keywords = "Blackwell order, information acquisition, Information costs, menu choice, rational inattention",
author = "{de Oliveira}, Henrique and Tommaso Denti and Max Mihm and Kemal Ozbek",
year = "2017",
month = "5",
day = "1",
doi = "10.3982/TE2302",
language = "English (US)",
volume = "12",
pages = "621--654",
journal = "Theoretical Economics",
issn = "1555-7561",
publisher = "Society for Economic Theory",
number = "2",

}

TY - JOUR

T1 - Rationally inattentive preferences and hidden information costs

AU - de Oliveira, Henrique

AU - Denti, Tommaso

AU - Mihm, Max

AU - Ozbek, Kemal

PY - 2017/5/1

Y1 - 2017/5/1

N2 - We show how information acquisition costs can be identified using observable choice data. Identifying information costs from behavior is especially relevant when these costs depend on factors—such as time, effort, and cognitive resources—that are difficult to observe directly, as in models of rational inattention. Using willingness-to-pay data for opportunity sets—which require more or less information to make choices—we establish a set of canonical properties that are necessary and sufficient to identify information costs. We also provide an axiomatic characterization of the induced rationally inattentive preferences and show how they reveal the amount of information a decision-maker acquires.

AB - We show how information acquisition costs can be identified using observable choice data. Identifying information costs from behavior is especially relevant when these costs depend on factors—such as time, effort, and cognitive resources—that are difficult to observe directly, as in models of rational inattention. Using willingness-to-pay data for opportunity sets—which require more or less information to make choices—we establish a set of canonical properties that are necessary and sufficient to identify information costs. We also provide an axiomatic characterization of the induced rationally inattentive preferences and show how they reveal the amount of information a decision-maker acquires.

KW - Blackwell order

KW - information acquisition

KW - Information costs

KW - menu choice

KW - rational inattention

UR - http://www.scopus.com/inward/record.url?scp=85019944081&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85019944081&partnerID=8YFLogxK

U2 - 10.3982/TE2302

DO - 10.3982/TE2302

M3 - Article

AN - SCOPUS:85019944081

VL - 12

SP - 621

EP - 654

JO - Theoretical Economics

JF - Theoretical Economics

SN - 1555-7561

IS - 2

ER -