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DISCRETE CHOICE AND RATIONAL INATTENTION: A GENERAL EQUIVALENCE RESULT
Author(s) -
Fosgerau Mogens,
Melo Emerson,
de Palma André,
Shum Matthew
Publication year - 2020
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12469
Subject(s) - multinomial logistic regression , equivalence (formal languages) , discrete choice , mathematical economics , entropy (arrow of time) , mathematics , multinomial distribution , econometrics , statistics , discrete mathematics , physics , quantum mechanics
This article establishes a general equivalence between discrete choice and rational inattention models. Matějka and McKay (2015) showed that when information costs are modeled using the Shannon entropy, the choice probabilities in the rational inattention (RI) model take the multinomial logit form. We show that, for one given prior over states, RI choice probabilities may take the form of any additive random utility discrete choice model (ARUM) when the information cost is a Bregman information, a class defined in this article. The prior information of the rationally inattentive agent is summarized in a constant vector of utilities in the corresponding ARUM.