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Rationally inattentive preferences and hidden information costs

Author

Listed:
  • de Oliveira, Henrique

    (Department of Economics, Penn State University)

  • Denti, Tommaso

    (Department of Economics, MIT)

  • Mihm, Maximilian

    (Division of Social Science, NYU Abu Dhabi)

  • Ozbek, Kemal

    (School of Economics & Finance, University of St Andrews)

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.

Suggested Citation

  • de Oliveira, Henrique & Denti, Tommaso & Mihm, Maximilian & Ozbek, Kemal, 2017. "Rationally inattentive preferences and hidden information costs," Theoretical Economics, Econometric Society, vol. 12(2), May.
    • Handle: RePEc:the:publsh:2302
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Information costs; Blackwell order; information acquisition; menu choice; rational inattention;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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