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Multivariate Rational Inattention

Jianjun Miao (), Jieran Wu () and Eric Young ()
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Jieran Wu: Zhejiang University

No WP2019-07, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: We study optimal control problems in the multivariate linear-quadratic-Gaussian framework under rational inattention and show that the multivariate attention allocation problem can be reduced to a dynamic tracking problem in information theory. We propose a general solution method to solve this problem by using rate distortion functions and semidefinite programming and derive the optimal form and dimension of signals without strong prior restrictions. We provide generalized reverse water-filling solutions for some special cases. Applying our method to solve three multivariate economic models, we obtain some results qualitatively different from the literature.

Keywords: Rational Rational Inattention; Endogenous Information Choice; Rate Distortion Function; Dynamic Tracking Problem; Optimal Control (search for similar items in EconPapers)
JEL-codes: C61 D83 E21 E22 E31 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2018-12, Revised 2019-01
New Economics Papers: this item is included in nep-mac, nep-mic and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:bos:wpaper:wp2019-007

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