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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 . ISSN 0020-6598. (In Press) https://resolver.caltech.edu/CaltechAUTHORS:20200603-131255737

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Abstract

This paper establishes a general equivalence between discrete choice and rational inattention models. Matejka and McKay (2015) showed that when information costs are modelled 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 paper. 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 Wiley. 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, Filip Matejka, Paulo Natenzon, Antonio Rangel, Ryan Webb, and Michael Woodford for useful comments. Lucie Letrouit, Julien Monardo, and Alejandro Robinson Cortes provided research assistance.
Subject Keywords:Rational Inattention, discrete choice, random utility, convex analysis, generalized entropy
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. Accepted Author Manuscript. doi: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:03 Jun 2020 20:30

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