Robust Predictions in Games with Rational Inattention

Tommaso Denti and Doron Ravid

Papers from arXiv.org

Abstract: We derive robust predictions in games involving flexible information acquisition, also known as rational inattention (Sims 2003). These predictions remain accurate regardless of the specific methods players employ to gather information. Compared to scenarios where information is predetermined, rational inattention reduces welfare and introduces additional constraints on behavior. We show these constraints generically do not bind; the two knowledge regimes are behaviorally indistinguishable in most environments. Yet, we demonstrate the welfare difference they generate is substantial: optimal policy depends on whether one assumes information is given or acquired. We provide the necessary tools for policy analysis in this context.

Date: 2023-06
New Economics Papers: this item is included in nep-gth and nep-mic
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