Posterior Separable Cost of Information
American Economic Review
vol. 112,
no. 10, October 2022
(pp. 3215-59)
Abstract
We 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.Citation
Denti, Tommaso. 2022. "Posterior Separable Cost of Information." American Economic Review, 112 (10): 3215-59. DOI: 10.1257/aer.20211252Additional Materials
JEL Classification
- C91 Design of Experiments: Laboratory, Individual
- D11 Consumer Economics: Theory
- D12 Consumer Economics: Empirical Analysis
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making