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Foundations for optimal inattention

Ellis, Andrew (2013) Foundations for optimal inattention. . The London School of Economics and Political Science, London, UK.

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Abstract

This paper models an agent who has a limited capacity to pay attention to information and thus conditions her actions on a coarsening of the available information. An optimally inattentive agent chooses both her coarsening and her actions by constrained maximization of an underlying subjective expected utility preference relation. The main result axiomatically characterizes the conditional choices of actions by an agent that are necessary and sufficient for her behavior to be seen as if it is the result of optimal inattention. Observing these choices permits unique identification of the agent’s utility index, cognitive constraint and prior (the last under a suitable richness condition). An application considers a market in which strategic firms offer differentiated products. If the consumer’s information concerns firms’ quality, then equilibrium consumer surplus may be higher with an optimally inattentive consumer than with one who processes all available information.

Item Type: Monograph (Working Paper)
Official URL: http://www.lse.ac.uk/economics/home.aspx
Additional Information: © 2013 The Author
Divisions: Economics
Subjects: H Social Sciences > H Social Sciences (General)
Sets: Departments > Economics
Date Deposited: 11 Nov 2013 11:56
Last Modified: 08 Oct 2019 11:30
URI: http://eprints.lse.ac.uk/id/eprint/54248

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