On the Distributional Robustness of Finite Rational Inattention Models

Emerson Melo

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arXiv · 2208.03370

On the Distributional Robustness of Finite Rational Inattention Models

Emerson Melo

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Abstract

In this paper we study a rational inattention model in environments where the decision maker faces uncertainty about the true prior distribution over states. The decision maker seeks to select a stochastic choice rule over a finite set of alternatives that is robust to prior ambiguity. We fully characterize the distributional robustness of the rational inattention model in terms of a tractable concave program. We establish necessary and sufficient conditions to construct robust consideration sets. Finally, we quantify the impact of prior uncertainty, by introducing the notion of \emph{Worst-Case Sensitivity}.

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Emerson Melo. 2022-08-05. On the Distributional Robustness of Finite Rational Inattention Models. https://arxiv.org/abs/2208.03370

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