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Rationally inattentive preferences and hidden information costs

Henrique de Oliveira (), Tommaso Denti (), Maximilian Mihm () and Kemal Ozbek ()
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Henrique de Oliveira: Department of Economics, Penn State University
Tommaso Denti: Department of Economics, MIT
Maximilian Mihm: Division of Social Science, NYU Abu Dhabi
Kemal Ozbek: School of Economics & Finance, University of St Andrews

Theoretical Economics, 2017, vol. 12, issue 2

Abstract: We show how information acquisition costs can be identified using observable choice data. Identifying information costs from behavior is especially relevant when these costs depend on factors--such as time, effort, and cognitive resources--that are difficult to observe directly, as in models of rational inattention. Using willingness-to-pay data for opportunity sets--which require more or less information to make choices--we establish a set of canonical properties that are necessary and sufficient to identify information costs. We also provide an axiomatic characterization of the induced rationally inattentive preferences, and show how they reveal the amount of information a decision maker acquires.

Keywords: Information costs; Blackwell order; information acquisition; menu choice; rational inattention (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Date: 2017-05-30
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