Discrete Choice and Rational Inattention: a General Equivalence Result�

Fosgerau, Mogens and Melo, Emerson and Shum, Matt (2017): Discrete Choice and Rational Inattention: a General Equivalence Result�.

Abstract

This paper establishes a general equivalence between discrete choice and rational inattention models. We show that the choice probabilities emerging from any random utility discrete choice model can be obtained from a class of suitably generalized rational inattention models, and vice versa. Thus any discrete choice model can be given an interpretation in terms of boundedly rational behavior. The underlying idea is that the surplus function of a discrete choice model has a convex conjugate that is a generalized entropy (which is a suitable generalization of the Shannon entropy function). These generalized entropies are used to construct an information cost function for a generalized rational inattention model. We denote this class of rational inattention problems as Generalized Entropic Rational Inattention (GERI) models.

• Item Type: MPRA Paper
• Language: English
• Keywords: Rational Inattention; discrete choices; general entropy; con- vex analysis
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C25 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions ; Probabilities; D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; E - Macroeconomics and Monetary Economics > E0 - General > E03 - Behavioral Macroeconomics

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