EconPapers    
Economics at your fingertips  
 

Discrete Choice and Rational Inattention: a General Equivalence Result

Mogens Fosgerau (), Emerson Melo, André de Palma () and Matthew Shum
Additional contact information
Emerson Melo: Indiana University Bloomington
Matthew Shum: California Institute of Technology

No 17-26, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper establishes a general equivalence between discrete choice and rational inattention models. Matejka and McKay (2015, AER) showed that when information costs are modelled using the Shannon entropy, the resulting choice probabilities in the rational inattention model take the multinomial logit form. We show that when information costs are modelled using a class of generalized entropies, then the choice probabilities in any rational inattention model are observationally equivalent to some additive random utility discrete choice model and vice versa. This equivalence arises from convex- analytic properties of the random utility model. Thus any additive random utility model can be given an interpretation in terms of boundedly rational behavior. We provide examples of this equivalence utilizing the nested logit model, an empirically relevant random utility model allowing for flexible substitution possibilities between choices.

Keywords: Rational Inattention; Discrete Choice; Random Utility; General Entropy; Convex Analysis (search for similar items in EconPapers)
JEL-codes: D03 C25 D81 E03 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm, nep-ore, nep-tre and nep-upt
Date: 2017-12-06
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.economics.ku.dk/research/publications/wp/dp_2017/1726.pdf (application/pdf)

Related works:
Working Paper: Discrete Choice and Rational Inattention: a General Equivalence Result (2017) Downloads
Working Paper: Discrete Choice and Rational Inattention: A General Equivalence Result (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:1726

Access Statistics for this paper

More papers in Discussion Papers from University of Copenhagen. Department of Economics Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().

 
Page updated 2018-08-21
Handle: RePEc:kud:kuiedp:1726