Rational Inattention when Decisions Take Time / Benjamin M. Hébert, Michael Woodford.

Format:

Book

Author/Creator:

Hébert, Benjamin M.

Contributor:

National Bureau of Economic Research.

Woodford, Michael.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26415.

NBER working paper series no. w26415

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

Decisions take time, and the time taken to reach a decision is likely to be informative about the cost of more precise judgments. We formalize this insight in the context of a dynamic model of optimal evidence accumulation. We provide conditions under which the resulting belief dynamics resemble either diffusion processes or processes with large jumps. We then demonstrate that the state-contingent choice probabilities predicted by our model are identical to those predicted by a static rational inattention model, providing a micro-foundation for such models. In the diffusion case, our model provides a normative foundation for a variant of the drift-diffusion model from mathematical psychology.

Notes:

Print version record

October 2019.