Discrete Choice and Rational Inattention: a General Equivalence Result
Mogens Fosgerau (),
André de Palma () and
Matthew Shum ()
Additional contact information
Emerson Melo: Indiana University Bloomington
No 17-26, Discussion Papers from University of Copenhagen. Department of Economics
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)
Pages: 30 pages
New Economics Papers: this item is included in nep-dcm, nep-ore, nep-tre and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
Working Paper: Discrete Choice and Rational Inattention: a General Equivalence Result (2017)
Working Paper: Discrete Choice and Rational Inattention: A General Equivalence Result (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
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 ï¿½ster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().