IDEAS home Printed from https://ideas.repec.org/p/red/sed019/1062.html
   My bibliography  Save this paper

Geometric Rational Inattention

Author

Listed:
  • Roc Armenter

    (Federal Reserve Bank of Philadelphia)

  • Michele Muller-Itten

    (University of Notre Dame)

  • Zachary Stangebye

    (University of Notre Dame)

Abstract

We demonstrate that a wide class of Rational Inattention (RI) problems can be re-cast as a set of geometric orthogonality conditions. This approach allows us to separate the role of information costs and payoffs from that of prior beliefs. It also allows us to characterize the optimal conditional choice by what we call the ignorance equivalent action (IEA) of a menu. We use the IEA to derive novel comparative statics for changes in the menu. Finally, it serves as the foundation for our new, highly efficient numerical algorithm for the solution of these models: Our algorithm provides accurate solutions orders of magnitudes faster than current techniques.

Suggested Citation

  • Roc Armenter & Michele Muller-Itten & Zachary Stangebye, 2019. "Geometric Rational Inattention," 2019 Meeting Papers 1062, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1062
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2019/paper_1062.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Emir Kamenica & Matthew Gentzkow, 2011. "Bayesian Persuasion," American Economic Review, American Economic Association, vol. 101(6), pages 2590-2615, October.
    2. 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.
    3. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    4. Matthew Gentzkow & Emir Kamenica, 2014. "Costly Persuasion," American Economic Review, American Economic Association, vol. 104(5), pages 457-462, May.
    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. Roc Armenter & Michèle Müller-Itten & Zachary Stangebye, 2020. "Rational Inattention via Ignorance Equivalence," Working Papers 20-24, Federal Reserve Bank of Philadelphia.
    2. Roc Armenter & Michèle Müller-Itten & Zachary Strangebye, 2021. "Geometric Methods for Finite Rational Inattention," Working Papers 21-30, Federal Reserve Bank of Philadelphia.
    3. Mensch, Jeffrey, 2021. "Rational inattention and the monotone likelihood ratio property," Journal of Economic Theory, Elsevier, vol. 196(C).
    4. Wei, Dong, 2021. "Persuasion under costly learning," Journal of Mathematical Economics, Elsevier, vol. 94(C).
    5. Vasudha Jain & Mark Whitmeyer, 2021. "Whose Bias?," Papers 2111.10335, arXiv.org.
    6. Sosung Baik & Sung-Ha Hwang, 2021. "Auction design with ambiguity: Optimality of the first-price and all-pay auctions," Papers 2110.08563, arXiv.org.
    7. 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.
    8. Dewan, Ambuj & Neligh, Nathaniel, 2020. "Estimating information cost functions in models of rational inattention," Journal of Economic Theory, Elsevier, vol. 187(C).
    9. Martin, Daniel, 2017. "Strategic pricing with rational inattention to quality," Games and Economic Behavior, Elsevier, vol. 104(C), pages 131-145.
    10. Caplin, Andrew, 2014. "Rational inattention and revealed preference: The data-theoretic approach to economic modeling," Research in Economics, Elsevier, vol. 68(4), pages 295-305.
    11. 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.
    12. Matysková, Ludmila & Montes, Alfonso, 2023. "Bayesian persuasion with costly information acquisition," Journal of Economic Theory, Elsevier, vol. 211(C).
    13. Li, Anqi & Hu, Lin, 2023. "Electoral accountability and selection with personalized information aggregation," Games and Economic Behavior, Elsevier, vol. 140(C), pages 296-315.
    14. Tsakas, Elias, 2018. "Robust scoring rules," Research Memorandum 023, Maastricht University, Graduate School of Business and Economics (GSBE).
    15. Andrew Caplin & Mark Dean, 2013. "Behavioral Implications of Rational Inattention with Shannon Entropy," NBER Working Papers 19318, National Bureau of Economic Research, Inc.
    16. Kwiek, Maksymilian, 2020. "Communication via intermediaries," Games and Economic Behavior, Elsevier, vol. 121(C), pages 190-203.
    17. Tsakas, Elias, 2020. "Robust scoring rules," Theoretical Economics, Econometric Society, vol. 15(3), July.
    18. Tommaso Denti & Massimo Marinacci & Aldo Rustichini, 2022. "Experimental Cost of Information," American Economic Review, American Economic Association, vol. 112(9), pages 3106-3123, September.
    19. Matějka, Filip & Mackowiak, Bartosz & Wiederholt, Mirko, 2018. "Survey: Rational Inattention, a Disciplined Behavioral Model," CEPR Discussion Papers 13243, C.E.P.R. Discussion Papers.
    20. Dertwinkel-Kalt, Markus & Ebert, Sebastian & Köster, Mats, 2023. "On correlated lotteries in economic applications," Journal of Economic Behavior & Organization, Elsevier, vol. 215(C), pages 292-306.

    More about this item

    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:red:sed019:1062. 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: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    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.