Revealed Preference, Rational Inattention, and Costly Information Acquisition
American Economic Review · 2015 · Volume 105 · Issue 7
Abstract
Apparently mistaken decisions are ubiquitous. To what extent does this reflect irrationality, as opposed to a rational trade-off between the costs of information acquisition and the expected benefits of learning? We develop a revealed preference test that characterizes all patterns of choice "mistakes" consistent with a general model of optimal costly information acquisition and identify the extent to which information costs can be recovered from choice data. (JEL D11, D81, D83)
Keywords
Consumer Economics: Theory, Criteria for Decision-Making under Risk and Uncertainty, Search, Learning, Information and Knowledge, Communication, Belief, Unawareness
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