Rational inattention, optimal consideration sets, and stochastic choice

Andrew Caplin; Mark Dean; John Leahy

doi:10.1093/restud/rdy037

Rational inattention, optimal consideration sets, and stochastic choice

Andrew Caplin, Mark Dean, John Leahy

Research output: Contribution to journal › Review article › peer-review

Abstract

We unite two basic approaches to modelling limited attention in choice by showing that the rational inattention model implies the formation of consideration sets—only a subset of the available alternatives will be considered for choice. We provide necessary and sufficient conditions for rationally inattentive behaviour which allow the identification of consideration sets. In simple settings, chosen options are those that are best on a stand-alone basis. In richer settings, the consideration set can only be identified holistically. In addition to payoffs, prior beliefs impact consideration sets. Linear inequalities identify all priors consistent with each possible consideration set.

Original language	English (US)
Pages (from-to)	1061-1094
Number of pages	34
Journal	Review of Economic Studies
Volume	86
Issue number	3
DOIs	https://doi.org/10.1093/restud/rdy037
State	Published - May 1 2019

Keywords

Consideration
Limited attention
Sets
Shannon Mutual Information

ASJC Scopus subject areas

Economics and Econometrics

Access to Document

10.1093/restud/rdy037

Fingerprint Dive into the research topics of 'Rational inattention, optimal consideration sets, and stochastic choice'. Together they form a unique fingerprint.

Cite this

@article{2e7bf1a5b5e049c5a5d35ec5b889b3d5,

title = "Rational inattention, optimal consideration sets, and stochastic choice",

abstract = "We unite two basic approaches to modelling limited attention in choice by showing that the rational inattention model implies the formation of consideration sets—only a subset of the available alternatives will be considered for choice. We provide necessary and sufficient conditions for rationally inattentive behaviour which allow the identification of consideration sets. In simple settings, chosen options are those that are best on a stand-alone basis. In richer settings, the consideration set can only be identified holistically. In addition to payoffs, prior beliefs impact consideration sets. Linear inequalities identify all priors consistent with each possible consideration set.",

keywords = "Consideration, Limited attention, Sets, Shannon Mutual Information",

author = "Andrew Caplin and Mark Dean and John Leahy",

note = "Funding Information: Acknowledgments. We thank Dirk Bergemann, Henrique de Oliveira, Xavier Gabaix, Sen Geng, Andrei Gomberg, Daniel Martin, Filip Matejka, Alisdair McKay, Stephen Morris, Dan Silverman, and Michael Woodford for their constructive contributions. Andrew Caplin thanks the Sloan Foundation and Nomis Foundation for supporting this research as part of the Program on the Attentional and Perceptual Foundations of Economic Behaviour (https://wp.nyu.edu/sloan_nomis_project/). This article develops some of the concepts of Caplin and Dean (2013) and subsumes those parts of that article that are common. Publisher Copyright: {\textcopyright} The Author(s) 2018. Copyright: Copyright 2021 Elsevier B.V., All rights reserved.",

year = "2019",

month = may,

day = "1",

doi = "10.1093/restud/rdy037",

language = "English (US)",

volume = "86",

pages = "1061--1094",

journal = "Review of Economic Studies",

issn = "0034-6527",

publisher = "Oxford University Press",

number = "3",

}

TY - JOUR

T1 - Rational inattention, optimal consideration sets, and stochastic choice

AU - Caplin, Andrew

AU - Dean, Mark

AU - Leahy, John

N1 - Funding Information: Acknowledgments. We thank Dirk Bergemann, Henrique de Oliveira, Xavier Gabaix, Sen Geng, Andrei Gomberg, Daniel Martin, Filip Matejka, Alisdair McKay, Stephen Morris, Dan Silverman, and Michael Woodford for their constructive contributions. Andrew Caplin thanks the Sloan Foundation and Nomis Foundation for supporting this research as part of the Program on the Attentional and Perceptual Foundations of Economic Behaviour (https://wp.nyu.edu/sloan_nomis_project/). This article develops some of the concepts of Caplin and Dean (2013) and subsumes those parts of that article that are common. Publisher Copyright: © The Author(s) 2018. Copyright: Copyright 2021 Elsevier B.V., All rights reserved.

PY - 2019/5/1

Y1 - 2019/5/1

N2 - We unite two basic approaches to modelling limited attention in choice by showing that the rational inattention model implies the formation of consideration sets—only a subset of the available alternatives will be considered for choice. We provide necessary and sufficient conditions for rationally inattentive behaviour which allow the identification of consideration sets. In simple settings, chosen options are those that are best on a stand-alone basis. In richer settings, the consideration set can only be identified holistically. In addition to payoffs, prior beliefs impact consideration sets. Linear inequalities identify all priors consistent with each possible consideration set.

AB - We unite two basic approaches to modelling limited attention in choice by showing that the rational inattention model implies the formation of consideration sets—only a subset of the available alternatives will be considered for choice. We provide necessary and sufficient conditions for rationally inattentive behaviour which allow the identification of consideration sets. In simple settings, chosen options are those that are best on a stand-alone basis. In richer settings, the consideration set can only be identified holistically. In addition to payoffs, prior beliefs impact consideration sets. Linear inequalities identify all priors consistent with each possible consideration set.

KW - Consideration

KW - Limited attention

KW - Sets

KW - Shannon Mutual Information

UR - http://www.scopus.com/inward/record.url?scp=85068443518&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85068443518&partnerID=8YFLogxK

U2 - 10.1093/restud/rdy037

DO - 10.1093/restud/rdy037

M3 - Review article

AN - SCOPUS:85068443518

VL - 86

SP - 1061

EP - 1094

JO - Review of Economic Studies

JF - Review of Economic Studies

SN - 0034-6527

IS - 3

ER -

Rational inattention, optimal consideration sets, and stochastic choice

Abstract

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Cite this