IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1812.04211.html
   My bibliography  Save this paper

The Cost of Information: The Case of Constant Marginal Costs

Author

Listed:
  • Luciano Pomatto
  • Philipp Strack
  • Omer Tamuz

Abstract

We develop an axiomatic theory of information acquisition that captures the idea of constant marginal costs in information production: the cost of generating two independent signals is the sum of their costs, and generating a signal with probability half costs half its original cost. Together with Blackwell monotonicity and a continuity condition, these axioms determine the cost of a signal up to a vector of parameters. These parameters have a clear economic interpretation and determine the difficulty of distinguishing states.

Suggested Citation

  • Luciano Pomatto & Philipp Strack & Omer Tamuz, 2018. "The Cost of Information: The Case of Constant Marginal Costs," Papers 1812.04211, arXiv.org, revised Feb 2023.
    • Handle: RePEc:arx:papers:1812.04211
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1812.04211
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2013. "Entropy and the Value of Information for Investors," American Economic Review, American Economic Association, vol. 103(1), pages 360-377, February.
    2. Tomasz Strzalecki, 2011. "Axiomatic Foundations of Multiplier Preferences," Econometrica, Econometric Society, vol. 79(1), pages 47-73, January.
    3. Lars Peter Hansen & Thomas J Sargent, 2014. "Robust Control and Model Uncertainty," World Scientific Book Chapters, in: UNCERTAINTY WITHIN ECONOMIC MODELS, chapter 5, pages 145-154, World Scientific Publishing Co. Pte. Ltd..
    4. Jakub Steiner & Colin Stewart & Filip Matějka, 2017. "Rational Inattention Dynamics: Inertia and Delay in Decision‐Making," Econometrica, Econometric Society, vol. 85, pages 521-553, March.
    5. Stephen Morris & Ming Yang, 2016. "Coordination and Continuous Choice," Working Papers 087_2017, Princeton University, Department of Economics, Econometric Research Program..
    6. Andrew Caplin & Mark Dean, 2015. "Revealed Preference, Rational Inattention, and Costly Information Acquisition," American Economic Review, American Economic Association, vol. 105(7), pages 2183-2203, July.
    7. repec:ris:msuecw:2019_009 is not listed on IDEAS
    8. Filip Matêjka & Alisdair McKay, 2015. "Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model," American Economic Review, American Economic Association, vol. 105(1), pages 272-298, January.
    9. 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.
    10. Ellis, Andrew, 2018. "Foundations for optimal inattention," Journal of Economic Theory, Elsevier, vol. 173(C), pages 56-94.
    11. Cabrales, Antonio & Gossner, Olivier & Serrano, Roberto, 2017. "A normalized value for information purchases," Journal of Economic Theory, Elsevier, vol. 170(C), pages 266-288.
    12. Arrow, Kenneth J, 1985. "Informational Structure of the Firm," American Economic Review, American Economic Association, vol. 75(2), pages 303-307, May.
    13. Andrew Caplin & Mark Dean, 2013. "Behavioral Implications of Rational Inattention with Shannon Entropy," NBER Working Papers 19318, National Bureau of Economic Research, Inc.
    14. Andrew Caplin & Mark Dean & John Leahy, 2022. "Rationally Inattentive Behavior: Characterizing and Generalizing Shannon Entropy," Journal of Political Economy, University of Chicago Press, vol. 130(6), pages 1676-1715.
    15. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    16. Sims, Christopher A., 2010. "Rational Inattention and Monetary Economics," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 4, pages 155-181, Elsevier.
    17. Hebert, Benjamin & Woodford, Michael, 2017. "Rational Inattention with Sequential Information Sampling," Research Papers repec:ecl:stabus:3457, Stanford University, Graduate School of Business.
    18. Robert Wilson, 1975. "Informational Economies of Scale," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 184-195, Spring.
    19. Jacob Marschak, 1959. "Remarks on the Economics of Information," Cowles Foundation Discussion Papers 70, Cowles Foundation for Research in Economics, Yale University.
    20. Matějka, Filip & Mackowiak, Bartosz & Wiederholt, Mirko, 2018. "Survey: Rational Inattention, a Disciplined Behavioral Model," CEPR Discussion Papers 13243, C.E.P.R. Discussion Papers.
    21. Frederick Mosteller & Philip Nogee, 1951. "An Experimental Measurement of Utility," Journal of Political Economy, University of Chicago Press, vol. 59(5), pages 371-371.
    22. Andrew Caplin, 2016. "Measuring and Modeling Attention," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 379-403, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tsakas, Elias, 2020. "Robust scoring rules," Theoretical Economics, Econometric Society, vol. 15(3), July.
    2. Bartosz Maćkowiak & Filip Matějka & Mirko Wiederholt, 2023. "Rational Inattention: A Review," Journal of Economic Literature, American Economic Association, vol. 61(1), pages 226-273, March.
    3. Mogens Fosgerau & Emerson Melo & André de Palma & Matthew Shum, 2020. "Discrete Choice And Rational Inattention: A General Equivalence Result," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1569-1589, November.
    4. Tsakas, Elias, 2018. "Robust scoring rules," Research Memorandum 023, Maastricht University, Graduate School of Business and Economics (GSBE).
    5. Philippe Jehiel & Jakub Steiner, 2020. "Selective Sampling with Information-Storage Constraints [On interim rationality, belief formation and learning in decision problems with bounded memory]," The Economic Journal, Royal Economic Society, vol. 130(630), pages 1753-1781.
    6. David Walker-Jones, 2019. "Rational Inattention and Perceptual Distance," Papers 1909.00888, arXiv.org, revised Dec 2019.
    7. Monte, Daniel & Linhares, Luis Henrique, 2023. "Stealth Startups, Clauses, and Add-ons: A Model of Strategic Obfuscation," MPRA Paper 115926, University Library of Munich, Germany.
    8. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    9. Steiner, Jakub & Jehiel, Philippe, 2017. "On Second Thoughts, Selective Memory, and Resulting Behavioral Biases," CEPR Discussion Papers 12546, C.E.P.R. Discussion Papers.
    10. Matějka, Filip & Mackowiak, Bartosz & Wiederholt, Mirko, 2018. "Survey: Rational Inattention, a Disciplined Behavioral Model," CEPR Discussion Papers 13243, C.E.P.R. Discussion Papers.
    11. Weijie Zhong, 2018. "The Indirect Cost of Information," Papers 1809.00697, arXiv.org, revised Apr 2020.
    12. Hébert, Benjamin & Woodford, Michael, 2023. "Rational inattention when decisions take time," Journal of Economic Theory, Elsevier, vol. 208(C).
    13. Matysková, Ludmila & Rogers, Brian & Steiner, Jakub & Sun, Keh-Kuan, 2020. "Habits as adaptations: An experimental study," Games and Economic Behavior, Elsevier, vol. 122(C), pages 391-406.
    14. Andrew Caplin & Mark Dean & John Leahy, 2022. "Rationally Inattentive Behavior: Characterizing and Generalizing Shannon Entropy," Journal of Political Economy, University of Chicago Press, vol. 130(6), pages 1676-1715.
    15. Mensch, Jeffrey, 2021. "Rational inattention and the monotone likelihood ratio property," Journal of Economic Theory, Elsevier, vol. 196(C).
    16. Benjamin Hébert & Michael Woodford, 2018. "Information Costs and Sequential Information Sampling," NBER Working Papers 25316, National Bureau of Economic Research, Inc.
    17. Benjamin Hébert & Michael Woodford, 2017. "Rational Inattention and Sequential Information Sampling," NBER Working Papers 23787, National Bureau of Economic Research, Inc.
    18. Gaglianone, Wagner Piazza & Giacomini, Raffaella & Issler, João Victor & Skreta, Vasiliki, 2022. "Incentive-driven inattention," Journal of Econometrics, Elsevier, vol. 231(1), pages 188-212.
    19. Tommaso Denti & Massimo Marinacci & Aldo Rustichini, 2022. "Experimental Cost of Information," American Economic Review, American Economic Association, vol. 112(9), pages 3106-3123, September.
    20. Aubrey Clark & Giovanni Reggiani, 2021. "Contracts for acquiring information," Papers 2103.03911, arXiv.org.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1812.04211. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.