Munich Personal RePEc Archive

Discrete Choice and Rational Inattention: a General Equivalence Result

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

This is the latest version of this item.

[img]
Preview
PDF
MPRA_paper_78081.pdf

Download (362kB) | Preview

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 convex-analytic 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.

Available Versions of this Item

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.