Revealed preference, rational inattention, and costly information acquisition

Andrew Caplin, Mark Dean

    Research output: Contribution to journalArticlepeer-review

    Abstract

    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. (JEL D11, D81, D83).

    Original languageEnglish (US)
    Pages (from-to)2183-2203
    Number of pages21
    JournalAmerican Economic Review
    Volume105
    Issue number7
    DOIs
    StatePublished - Jul 1 2015

    ASJC Scopus subject areas

    • Economics and Econometrics

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