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Discrete choice and rational inattention: a general equivalence result

Fosgerau, Mogens and Melo, Emerson and de Palma, André and Shum, Matthew (2020) Discrete choice and rational inattention: a general equivalence result. International Economic Review, 61 (4). pp. 1569-1589. ISSN 0020-6598. https://resolver.caltech.edu/CaltechAUTHORS:20200603-131255737

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Abstract

This article establishes a general equivalence between discrete choice and rational inattention models. Matějka and McKay (2015) showed that when information costs are modeled using the Shannon entropy, the choice probabilities in the rational inattention (RI) model take the multinomial logit form. We show that, for one given prior over states, RI choice probabilities may take the form of any additive random utility discrete choice model (ARUM) when the information cost is a Bregman information, a class defined in this article. The prior information of the rationally inattentive agent is summarized in a constant vector of utilities in the corresponding ARUM.


Item Type:Article
Related URLs:
URLURL TypeDescription
https://doi.org/10.1111/iere.12469DOIArticle
https://doi.org/10.2139/ssrn.2889048DOIWorking Paper
https://arxiv.org/abs/1709.09117arXivDiscussion Paper
ORCID:
AuthorORCID
Melo, Emerson0000-0002-8129-5239
Shum, Matthew0000-0002-6262-915X
Additional Information:© 2020 The Authors. International Economic Review published by Wiley Periodicals LLC on behalf of the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association This is an open access article under the terms of the Creative Commons Attribution‐NonCommercial‐NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non‐commercial and no modifications or adaptations are made. Issue Online: 11 November 2020; Version of Record online: 16 June 2020; Accepted manuscript online: 03 June 2020; Manuscript revised: 07 March 2020; Manuscript received: 10 May 2019. We thank Bob Becker, Marcus Berliant, Mark Dean, Federico Echenique, Juan Carlos Escanciano, Paul Heidhues, Joonhwi Joo, Filip Matejka, Paulo Natenzon, Henrique de Oliveira, Antonio Rangel, Ryan Webb, Michael Woodford, and participants at the 2018 AEA meetings (Philadelphia) for useful comments. Alejandro Robinson Cortes, Lucie Letrouit, and Julien Monardo provided research assistance. We are grateful to the editor and three referees for their very valuable comments and suggestions. Mogens Fosgerau has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation program (grant agreement No. 740369).
Funders:
Funding AgencyGrant Number
European Research Council (ERC)740369
Subject Keywords:Rational Inattention, discrete choice, random utility, convex analysis, generalized entropy
Issue or Number:4
Classification Code:JEL codes: D03, C25, D81, E03
Record Number:CaltechAUTHORS:20200603-131255737
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20200603-131255737
Official Citation:Fosgerau, M., Melo, E., de Palma, A. and Shum, M. (2020), DISCRETE CHOICE AND RATIONAL INATTENTION: A GENERAL EQUIVALENCE RESULT. International Economic Review, 61: 1569-1589. https://doi.org/10.1111/iere.12469
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:103672
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:03 Jun 2020 20:30
Last Modified:02 Dec 2020 18:07

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