Revealed Preference, Rational Inattention, and Costly Information Acquisition

Revealed Preference, Rational Inattention, and Costly Information Acquisition

Apparently mistaken decisions are ubiquitous. To what extent does this reflect irrationality, as opposed to a rational trade-off between the costs of information acquisition and the expected benefits of learning? We develop a revealed preference test that characterizes all patterns of choice "m...

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Veröffentlicht in:The American economic review 2015-07, Vol.105 (7), p.2183-2203
Hauptverfasser: Caplin, Andrew, Dean, Mark
Format: Artikel
Sprache:eng
Schlagworte:
Acquisition costs
Acquisitions
Acquisitions & mergers
Behavior
Cost functions
Cost structure
Costs
Data collection
Datasets
Decision making
Economic analysis
Economic models
Economic theory
Expected utility
Information
Information representations
Learning
Observed choices
Preferences
Probability
Rational choice theory
Studies
Time
Utilities costs
Utility functions
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Beschreibung
Zusammenfassung:Apparently mistaken decisions are ubiquitous. To what extent does this reflect irrationality, as opposed to a rational trade-off between the costs of information acquisition and the expected benefits of learning? We develop a revealed preference test that characterizes all patterns of choice "mistakes" consistent with a general model of optimal costly information acquisition and identify the extent to which information costs can be recovered from choice data.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20140117