Rationally Inattentive Behavior

Characterizing and Generalizing Shannon Entropy

Bibliographic Data

ID10179461
AuthorsAndrew Caplin (National Bureau of Economic Research), Mark Dean (0000-0001-7110-5254, Columbia University), John Leahy (0000-0001-5221-0884, University of Michigan)
Year2022
Volume130
Issue6
Pages1676-1715
Publication date2022-01-31
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueJournal of Political Economy (JOURNAL)
Journal identifiersISSN: 0022-3808 • E-ISSN: 1537-534X
PublisherUniversity of Chicago Press (PUBLISHER • US)
DOI10.1086/719276
OpenAlexW3207643377
LanguageEN
Citations received10
References cited34

We introduce three new classes of attention cost functions: posterior separable, uniformly posterior separable, and invariant posterior separable. As with the Shannon cost function, all can be solved using Lagrangian methods. Uniformly posterior-separable cost functions capture many forms of sequential learning and hence play a key role in many applications. Invariant posterior-separable cost functions make learning strategies depend exclusively on payoff uncertainty. We introduce two behavioral axioms, Locally Invariant Posteriors and Only Payoffs Matter, which identify posterior-separable functions as uniformly and invariant posterior separable, respectively. In combination, they pinpoint the Shannon cost function

Axiom · Entropy (arrow of time · Invariant (physics · Mathematical analysis · Mathematical economics · Mathematical optimization · Physics · Separable space · Stochastic game · Advanced Bandit Algorithms Research · Applied Mathematics · Machine Learning and Algorithms · Mathematics · Statistical Mechanics and Entropy

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