Working Paper

Geometric Methods for Finite Rational Inattention

Abstract: We present a geometric approach to the finite Rational Inattention (RI) model, recasting it as a convex optimization problem with reduced dimensionality that is well-suited to numerical methods. We provide an algorithm that outperforms existing RI computation techniques in terms of both speed and accuracy. We also introduce methods to quantify the impact of numerical inaccuracy on the behavioral predictions and to produce robust predictions regarding the most frequently implemented actions.

Keywords: rational inattention; Shannon entropy; information acquisition; learning; consideration sets;

JEL Classification: C63; D81; D83;

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Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2021-09-14

Number: 21-30