American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Revealed Preference, Rational Inattention, and Costly Information Acquisition
American Economic Review
vol. 105,
no. 7, July 2015
(pp. 2183–2203)
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)Citation
Caplin, Andrew, and Mark Dean. 2015. "Revealed Preference, Rational Inattention, and Costly Information Acquisition." American Economic Review, 105 (7): 2183–2203. DOI: 10.1257/aer.20140117Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness