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Revealed Preference, Rational Inattention, and Costly Information Acquisition

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  • Andrew Caplin
  • Mark Dean

Abstract

We develop a revealed preference test for optimal acquisition of costly information. The test encompasses models of rational inattention, sequential signal processing, and search. We provide limits on the extent to which attention costs can be recovered from choice data. We experimentally elicit state dependent stochastic choice data of the form the tests require. In simple cases, tests confirm that subjects adjust their attention in response to incentives as the theory dictates.

Suggested Citation

  • Andrew Caplin & Mark Dean, 2014. "Revealed Preference, Rational Inattention, and Costly Information Acquisition," NBER Working Papers 19876, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19876
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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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