Geometric Methods for Finite Rational Inattention

Roc Armenter (), Michèle Müller-Itten and Zachary Strangebye

No 21-30, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We present a geometric approach to the finite Rational Inattention (RI) model, recasting it as a convex optimization problem with reduced dimensionality that is well-suited to numerical methods. We provide an algorithm that outperforms existing RI computation techniques in terms of both speed and accuracy. We also introduce methods to quantify the impact of numerical inaccuracy on the behavioral predictions and to produce robust predictions regarding the most frequently implemented actions.

Keywords: rational inattention; Shannon entropy; information acquisition; learning; consideration sets (search for similar items in EconPapers)
JEL-codes: C63 D81 D83 (search for similar items in EconPapers)
Pages: 40
Date: 2021-09-14
New Economics Papers: this item is included in nep-isf, nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:93054

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DOI: 10.21799/frbp.wp.2021.30

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