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Constrained versus Unconstrained Rational Inattention

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  • Yaron Azrieli

    (Department of Economics, The Ohio State University, Columbus, OH 43210, USA)

Abstract

The rational inattention literature is split between two versions of the model: in one, mutual information of states and signals are bounded by a hard constraint, while, in the other, it appears as an additive term in the decision maker’s utility function. The resulting constrained and unconstrained maximization problems are closely related, but, nevertheless, their solutions differ in certain aspects. In particular, movements in the decision maker’s prior belief and utility function lead to opposite comparative statics conclusions.

Suggested Citation

  • Yaron Azrieli, 2021. "Constrained versus Unconstrained Rational Inattention," Games, MDPI, vol. 12(1), pages 1-22, January.
    • Handle: RePEc:gam:jgames:v:12:y:2021:i:1:p:3-:d:475247
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    References listed on IDEAS

    as
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    6. Dewan, Ambuj & Neligh, Nathaniel, 2020. "Estimating information cost functions in models of rational inattention," Journal of Economic Theory, Elsevier, vol. 187(C).
    7. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    8. Laura Doval & Vasiliki Skreta, 2018. "Constrained Information Design," Papers 1811.03588, arXiv.org, revised Aug 2022.
    9. Cheremukhin, Anton & Popova, Anna & Tutino, Antonella, 2015. "A theory of discrete choice with information costs," Journal of Economic Behavior & Organization, Elsevier, vol. 113(C), pages 34-50.
    10. Andrew Caplin & Mark Dean, 2013. "Behavioral Implications of Rational Inattention with Shannon Entropy," NBER Working Papers 19318, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Mariia Kosar & Sergei Mikhalishchev, 2022. "Inattentive Price Discovery in ETFs," CERGE-EI Working Papers wp735, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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