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Rationally inattentive preferences and hidden information costs

Rationally inattentive preferences and hidden information costs
Rationally inattentive preferences and hidden information costs
We show how information acquisition costs can be identified using observable choice data. Identifying information costs from behavior is especially relevant when these costs depend on factors—such as time, effort, and cognitive resources—that are difficult to observe directly, as in models of rational inattention. Using willingness-to-pay data for opportunity sets—which require more or less information to make choices—we establish a set of canonical properties that are necessary and sufficient to identify information costs. We also provide an axiomatic characterization of the induced rationally inattentive preferences and show how they reveal the amount of information a decision-maker acquires.
621-654
de Oliveira, Henrique
33c28fed-7024-4b44-98e6-6433db74eeab
Denti, Tomasso
b66f18e1-0737-48f8-a560-436d5edbcdad
Mihm, Max
3123d6b8-55e0-4cd4-ada5-542cd1f1f58f
Ozbek, Kemal
e7edfcf5-cb17-4e64-bfa4-30fb527d2e46
de Oliveira, Henrique
33c28fed-7024-4b44-98e6-6433db74eeab
Denti, Tomasso
b66f18e1-0737-48f8-a560-436d5edbcdad
Mihm, Max
3123d6b8-55e0-4cd4-ada5-542cd1f1f58f
Ozbek, Kemal
e7edfcf5-cb17-4e64-bfa4-30fb527d2e46

de Oliveira, Henrique, Denti, Tomasso, Mihm, Max and Ozbek, Kemal (2017) Rationally inattentive preferences and hidden information costs. Theoretical Economics, 12 (2), 621-654. (doi:10.3982/TE2302).

Record type: Article

Abstract

We show how information acquisition costs can be identified using observable choice data. Identifying information costs from behavior is especially relevant when these costs depend on factors—such as time, effort, and cognitive resources—that are difficult to observe directly, as in models of rational inattention. Using willingness-to-pay data for opportunity sets—which require more or less information to make choices—we establish a set of canonical properties that are necessary and sufficient to identify information costs. We also provide an axiomatic characterization of the induced rationally inattentive preferences and show how they reveal the amount of information a decision-maker acquires.

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Accepted/In Press date: 3 March 2016
e-pub ahead of print date: 26 May 2017
Published date: May 2017

Identifiers

Local EPrints ID: 436135
URI: http://eprints.soton.ac.uk/id/eprint/436135
PURE UUID: c95a1f09-62c7-4424-8931-feb08351afbe
ORCID for Kemal Ozbek: ORCID iD orcid.org/0000-0003-3265-233X

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Date deposited: 29 Nov 2019 17:30
Last modified: 17 Mar 2024 03:59

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Contributors

Author: Henrique de Oliveira
Author: Tomasso Denti
Author: Max Mihm
Author: Kemal Ozbek ORCID iD

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