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Foundations for optimal inattention

Andrew Ellis ()

Journal of Economic Theory, 2018, vol. 173, issue C, 56-94

Abstract: This paper models an agent who has a limited capacity to pay attention to information and thus conditions her actions on a coarsening of the available information. An optimally inattentive agent chooses both her coarsening and her actions by maximization of an underlying subjective expected utility preference relation, net of a cognitive cost of attention. The main result axiomatically characterizes the conditional choices of actions by an agent that are necessary and sufficient for her behavior to be seen as if it is the result of optimal inattention. Observing these choices permits unique identification of the agent's utility index, the information to which she pays attention, her attention cost and her prior whenever information is costly.

Keywords: Inattention; Optimal inattention; Conditional choice (search for similar items in EconPapers)
JEL-codes: D01 D81 D83 (search for similar items in EconPapers)
Date: 2018
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