DISCRETE CHOICE AND RATIONAL INATTENTION: A GENERAL EQUIVALENCE RESULT
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Publication:4999799
DOI10.1111/IERE.12469zbMATH Open1467.91030arXiv1709.09117OpenAlexW2586222447WikidataQ104111464 ScholiaQ104111464MaRDI QIDQ4999799FDOQ4999799
Authors: Mogens Fosgerau, Emerson Melo, André de Palma, Matthew Shum 
Publication date: 2 July 2021
Published in: International Economic Review (Search for Journal in Brave)
Abstract: This paper establishes a general equivalence between discrete choice and rational inattention models. Matejka and McKay (2015, AER) showed that when information costs are modelled using the Shannon entropy function, the resulting choice probabilities in the rational inattention model take the multinomial logit form. By exploiting convex-analytic properties of the discrete choice model, we show that when information costs are modelled using a class of generalized entropy functions, the choice probabilities in any rational inattention model are observationally equivalent to some additive random utility discrete choice model and vice versa. Thus any additive random utility model can be given an interpretation in terms of boundedly rational behavior. This includes empirically relevant specifications such as the probit and nested logit models.
Full work available at URL: https://arxiv.org/abs/1709.09117
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