Foundations for optimal inattention

Foundations for optimal inattention

This paper models an agent who has a limited capacity to pay attention to information and thus conditions her actions on a coarsening of the available information. An optimally inattentive agent chooses both her coarsening and her actions by constrained maximization of an underlying subjective expected utility preference relation. The main result axiomatically characterizes the conditional choi...

Competing for Consumer Inattention∗

Consumers purchase multiple types of goods, but may be able to examine only a limited number of markets for the best price. We propose a simple model which captures these features, conveying new insights. A firm’s price can deflect or draw attention to its market, and consequently, limited attention introduces a new dimension of cross-market competition. We characterize the equilibrium, and sho...

Is Ignorance Bliss? Rational Inattention and Optimal Pricing∗

A rationally inattentive consumer processes information about his valuation prior to making his purchasing decision. In a monopoly pricing problem, I study the case in which information processing constraints restrict the consumer to finite information structures. The limiting, unconstrained case is analyzed as well. Any finite equilibrium information structure satisfies three properties: It is...

Rational Inattention, Optimal Consideration Sets and Stochastic Choice∗

We unite two of the most common approaches to modelling limited attention in choice by showing that the rational inattention model (Sims [2003]) implies the formation of consideration sets —only a subset of the available alternatives will be considered for choice. We provide a new set of necessary and suffi cient conditions for rationally inattentive behavior which allow the identification of c...

Ricci Flow: The Foundations via Optimal Transportation