Experimental Cost of Information
American Economic Review
vol. 112,
no. 9, September 2022
(pp. 3106-23)
Abstract
We relate two main representations of the cost of acquiring information: a cost that depends on the experiment performed, as in statistical decision theory, and a cost that depends on the distribution of posterior beliefs, as in applications of rational inattention. We show that in many cases of interest, posterior-based costs are inconsistent with a primitive model of costly experimentation. The inconsistency is at the core of known limits to the application of rational inattention in games and, more broadly, in equilibrium analyses where beliefs are endogenous; we show that an experiment-based approach helps to understand and overcome these difficulties.Citation
Denti, Tommaso, Massimo Marinacci, and Aldo Rustichini. 2022. "Experimental Cost of Information." American Economic Review, 112 (9): 3106-23. DOI: 10.1257/aer.20210879Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness