Fosgerau, Mogens and Melo, Emerson and Andre, De Palma and Shum, Matt (2017): Discrete Choice and Rational Inattention: a General Equivalence Result.
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Abstract
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 function, the resulting choice probabilities in the rational inattention model take the multinomial logit form. By exploiting convexanalytic properties of the discrete choice model, we show that when information costs are modelled using a class of generalized entropy functions, the choice probabilities in any rational inattention model are observationally equivalent to some additive random utility discrete choice model and vice versa. This includes models such as the probit and nested logit.
Item Type:  MPRA Paper 

Original Title:  Discrete Choice and Rational Inattention: a General Equivalence Result 
Language:  English 
Keywords:  Rational inattention; discrete choice; random utility; convex analysis; generalized entropy 
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 DecisionMaking under Risk and Uncertainty E  Macroeconomics and Monetary Economics > E0  General > E03  Behavioral Macroeconomics 
Item ID:  78081 
Depositing User:  Prof. Mogens Fosgerau 
Date Deposited:  02 Apr 2017 12:41 
Last Modified:  02 Apr 2017 12:41 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/78081 
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