Dissertations

Dissertation Committee:
Filip Matějka (chair)
Jakub Steiner
Jan Zápal

Abstract:

In the first chapter we study fundamental links between two popular approaches to consumer choice: the multinomial logit model of individual discrete choice and the CES utility function, which describes a multiple choice of a representative consumer. We base our analysis on the rational inattention (RI) model and show that the demand system of RI agents, each of whom chooses a single option, coincides with the demand system of a fictitious representative agent with a CES utility function. Thus, the diversified choice of the representative agent may be explained by the heterogeneity in signals received by the RI agents. We obtain a new interpretation for the elasticity of substitution and the weighting coefficients of the CES utility function. Specifically, we provide a correspondence between parameters of the CES utility function, prior knowledge and marginal cost of information.

In the second paper we investigate the role of a value of a known policy with certain payoff on agents’ information acquisition and belief polarization. We model agents to be rationally inattentive: some information about the new policy can be acquired before a choice is made, but doing so is costly. We show that even small changes in the agents’ perception of the status quo can lead to polarization of opinions. Such behavior is caused by agents not learning about the states separately, but by endogenously pooling them into groups and acquiring only the information necessary to understand which group the realized state is from. As a consequence, the agents might update their expected belief about the value of the new policy wrongly, away from the true payoff.

In the third chapter we introduce a new role of quotas: the attentional role. We study the effect of quota implementation on the attention allocation strategy of a RI agent. First, we find that a RI agent who is forced to fulfill a quota always acquires information about existing options, unlike an unrestricted RI agent who can decide not to acquire any information. Second, we show that the same behavior could be achieved by subsidizing certain alternatives. Finally, we analyze optimal quotas from the social planner’s point of view under two scenarios: when the social planner takes into account production externalities and when he eliminates the influence of priors on the agent’s choice.

Full Text: “Essays on Implications of Rational Inattention to Discrete Choices” by Andrei Matveenko.