Rational Inattention, Optimal Consideration Sets, and Stochastic Choice

Andrew Caplin, Mark Dean and John Leahy

The Review of Economic Studies, 2019, vol. 86, issue 3, 1061-1094

Abstract: We unite two basic approaches to modelling limited attention in choice by showing that the rational inattention model implies the formation of consideration sets—only a subset of the available alternatives will be considered for choice. We provide necessary and sufficient conditions for rationally inattentive behaviour which allow the identification of consideration sets. In simple settings, chosen options are those that are best on a stand-alone basis. In richer settings, the consideration set can only be identified holistically. In addition to payoffs, prior beliefs impact consideration sets. Linear inequalities identify all priors consistent with each possible consideration set.

Keywords: Limited attention; Consideration; Sets; Shannon Mutual Information (search for similar items in EconPapers)
JEL-codes: D03 D83 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (67)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:86:y:2019:i:3:p:1061-1094.

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