Rational Inattention via Ignorance Equivalence

Type
working paper
Date Issued
2025-07-09
Author(s)
;
Armenter, Roc
;
Stangebye, Zachary
Abstract
We introduce the concept of the ignorance equivalent to effectively summarize the payoff possibilities of a rationally inattentive (RI) agent. The ignorance equivalent is a unique fictitious action that does not distort learning incentives when added to the agent’s menu, but also makes ignorance optimal. By restating the RI problem as a choice over a richer menu without learning, the approach provides new insights for menu expansion, the formation of consideration sets, and belief elicitation. When RI agents with different learning costs interact, their ignorance equivalents emerge in equilibrium, facilitating trade that allows agents to emulate the first-best learning strategy.
Language
English (United States)
URL
File(s)
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open.access

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RI_via_IE.pdf

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1.11 MB

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Adobe PDF

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