Rational Inattention via Ignorance Equivalence

Roc Armenter (), Michèle Müller-Itten and Zachary Strangebye

No 21-29, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We introduce the concept of the ignorance equivalent to effectively summarize the payoff possibilities in a finite Rational Inattention problem. The ignorance equivalent is a unique fictitious action that is weakly preferable to all existing learning strategies and yet generates no new profitable learning opportunities when added to the menu of choices. We fully characterize the relationship between the ignorance equivalent and the optimal learning strategies. Agents with heterogeneous priors self-select their own ignorance equivalent, which gives rise to an expected-utility analogue of the Rational Inattention problem. The approach provides new insights for menu expansion, the formation of consideration sets, the value of information, and belief elicitation. In a strategic game of contract choice, the ignorance equivalent emerges naturally in equilibrium.

Keywords: Rational inattention; information acquisition; learning. (search for similar items in EconPapers)
JEL-codes: C63 D81 D83 (search for similar items in EconPapers)
Pages: 53
Date: 2021-09-03
New Economics Papers: this item is included in nep-isf, nep-mic and nep-upt
Note: supersedes WP 20-24
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.philadelphiafed.org/-/media/frbp/asset ... ers/2021/wp21-29.pdf (text/html)

Related works:
Working Paper: Rational Inattention via Ignorance Equivalence (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:93041

Ordering information: This working paper can be ordered from

DOI: 10.21799/frbp.wp.2021.29

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul ().