Experimental Cost of Information

Tommaso Denti, Massimo Marinacci and Aldo Rustichini

American Economic Review, 2022, vol. 112, issue 9, 3106-23

Abstract: We relate two main representations of the cost of acquiring information: a cost that depends on the experiment performed, as in statistical decision theory, and a cost that depends on the distribution of posterior beliefs, as in applications of rational inattention. We show that in many cases of interest, posterior-based costs are inconsistent with a primitive model of costly experimentation. The inconsistency is at the core of known limits to the application of rational inattention in games and, more broadly, in equilibrium analyses where beliefs are endogenous; we show that an experiment-based approach helps to understand and overcome these difficulties.

JEL-codes: D82 D83 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Working Paper: Experimental Cost of Information (2019)
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DOI: 10.1257/aer.20210879

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