Posterior Separable Cost of Information
AbstractWe provide testable conditions under which the cost of acquiring information is given by the expected reduction of a measure of uncertainty (e.g., entropy). The assumption, under the name of posterior separability, is nearly universal in the literature of rational inattention; yet, a testable characterization has been lacking. In applications to experimental data, we indicate situations in which posterior separability is—and is not—a compelling assumption for the cost of information; we propose a generalization to address some of its shortcomings. We also show how to identify and estimate nonparametrically the cost of information from observable choice behavior.
CitationDenti, Tommaso. 2022. "Posterior Separable Cost of Information." American Economic Review, 112 (10): 3215-59. DOI: 10.1257/aer.20211252
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