NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Behavioral Implications of Rational Inattention with Shannon Entropy

Andrew Caplin, Mark Dean

NBER Working Paper No. 19318
Issued in August 2013
NBER Program(s):   TWP   EFG

The model of rational inattention with Shannon mutual information costs is increasingly ubiquitous. We introduce a new solution method that lays bare the general behavioral properties of this model and liberates development of alternative models. We experimentally test a key behavioral property characterizing the elasticity of choice mistakes with respect to attentional incentives. We find that subjects are less responsive to such changes than the model implies. We introduce generalized entropy cost functions that better match this feature of the data and that retain key simplifying features of the Shannon model.

download in pdf format
   (435 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19318

Users who downloaded this paper also downloaded these:
Wang, Wang, and Yang w19319 Optimal Consumption and Savings with Stochastic Income
Ericson and Fuster w19384 The Endowment Effect
Stiglitz and Yun w19317 Optimality and Equilibrium In a Competitive Insurance Market Under Adverse Selection and Moral Hazard
Caplin and Dean w19876 Revealed Preference, Rational Inattention, and Costly Information Acquisition
Woodford w19368 Macroeconomic Analysis without the Rational Expectations Hypothesis
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us