DISCRETE CHOICE AND RATIONAL INATTENTION: A GENERAL EQUIVALENCE RESULT. (16th June 2020)

• Record Type: Journal Article
• Authors: Fosgerau, Mogens; Melo, Emerson; de Palma, André; Shum, Matthew
• Is Part Of: International economic review. Volume 61:Number 4(2020)
• Page Start: 1569
• Page End: 1589
• Publication Date: 2020-06-16
• Subjects: Economics -- Periodicals; 330.05
• DOI: 10.1111/iere.12469
• Languages: English
• ISSNs: 0020-6598

Abstract

Abstract: This article establishes a general equivalence between discrete choice and rational inattention models. Matějka and McKay (2015) showed that when information costs are modeled using the Shannon entropy, the choice probabilities in the rational inattention (RI) model take the multinomial logit form. We show that, for one given prior over states, RI choice probabilities may take the form of any additive random utility discrete choice model (ARUM) when the information cost is a Bregman information, a class defined in this article. The prior information of the rationally inattentive agent is summarized in a constant vector of utilities in the corresponding ARUM.