Working Paper: NBER ID: w23652
Authors: Andrew Caplin; Mark Dean; John Leahy
Abstract: We provide a full behavioral characterization of the standard Shannon model of rational inattention. The key axiom is "Invariance under Compression", which identifies this model as capturing an ideal form of attention-constrained choice. We introduce tractable generalizations that allow for many of the known behavioral violations from this ideal, including asymmetries and complementarities in learning, context effects, and low responsiveness to incentives. We provide an even more general method of recovering attention costs from behavioral data. The data set in which we characterize all behavioral patterns is "state dependent" stochastic choice data.
Keywords: Rational Inattention; Shannon Entropy; Behavioral Economics
JEL Codes: D8; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Shannon model (C69) | attention-constrained choice (D91) |
| invariance under compression axiom (D10) | Shannon representation (C69) |
| Shannon model (C69) | behavioral predictions (D91) |
| cost function (D24) | behavioral axioms (D01) |
| behavioral axioms (D01) | recoverability of cost functions (D24) |
| attention costs (D91) | behavioral patterns (D91) |