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Costly information and random choice

Author

Listed:
  • Jetlir Duraj

    (University of Pittsburgh)

  • Yi-Hsuan Lin

    (Institute of Economics, Academia Sinica)

Abstract

Consider an agent who decides whether to employ an information structure to learn about a payoff-relevant state of the world before making a decision. Information is costly either because (1) the agent has to wait some time until the information structure becomes available and is impatient, or because (2) she has to pay a fixed and menu-independent cost to use the information structure. For each menu of options the analyst observes random choice from the menu and whether the agent acquires the information. We give an axiomatic characterization of when this random choice is consistent with either of the cases (1) or (2). We identify the information structure the agent can employ, as well as its costs. We also discuss implications of our approach for sequential sampling.

Suggested Citation

  • Jetlir Duraj & Yi-Hsuan Lin, 2022. "Costly information and random choice," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(1), pages 135-159, July.
    • Handle: RePEc:spr:joecth:v:74:y:2022:i:1:d:10.1007_s00199-021-01361-w
    DOI: 10.1007/s00199-021-01361-w
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    References listed on IDEAS

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    1. Jetlir Duraj, 2018. "Dynamic Random Subjective Expected Utility," Papers 1808.00296, arXiv.org.
    2. Hébert, Benjamin & Woodford, Michael, 2023. "Rational inattention when decisions take time," Journal of Economic Theory, Elsevier, vol. 208(C).
    3. Jay Lu, 2016. "Random Choice and Private Information," Econometrica, Econometric Society, vol. 84, pages 1983-2027, November.
    4. de Oliveira, Henrique & Denti, Tommaso & Mihm, Maximilian & Ozbek, Kemal, 2017. "Rationally inattentive preferences and hidden information costs," Theoretical Economics, Econometric Society, vol. 12(2), May.
    5. Machina, Mark J & Schmeidler, David, 1992. "A More Robust Definition of Subjective Probability," Econometrica, Econometric Society, vol. 60(4), pages 745-780, July.
    6. Daniel McFadden, 2005. "Revealed stochastic preference: a synthesis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(2), pages 245-264, August.
    7. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    8. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci, 2020. "Multinomial logit processes and preference discovery: outside and inside the black box," Working Papers 663, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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    Cited by:

    1. Brishti Guha, 2024. "Plea bargaining when juror effort is costly," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(3), pages 945-977, November.

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    More about this item

    Keywords

    Information acquisition; Random choice; Identification; Discounting;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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