Estimating information cost functions in models of rational inattention

Ambuj Dewan and Nathaniel Neligh

Journal of Economic Theory, 2020, vol. 187, issue C

Abstract: Models of costly information acquisition have grown in popularity in economics. However, little is known about what form information costs take in reality. We show that under mild assumptions on costs, including continuity and convexity, gross payoffs to decision makers are non-decreasing and continuous in potential rewards. We conduct experiments involving simple perceptual tasks with fine-grained variation in the level of potential rewards. Most subjects exhibit monotonicity in performance with respect to potential rewards, and evidence on continuity and convexity of costs is mixed. Moreover, subjects' behavior is consistent with a subset of cost functions commonly assumed in the literature.

Keywords: Experimental economics; Behavioral economics; Rational inattention; Decision theory (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:187:y:2020:i:c:s002205311830396x

DOI: 10.1016/j.jet.2020.105011

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