Logit, CES, and rational inattention
Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
Dokumenter
- 1-s2.0-S0165176519302630-main
Forlagets udgivne version, 309 KB, PDF-dokument
We study the 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 diversified 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 which chooses a single option, coincides with the demand system of a fictitious representative agent with 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.
Originalsprog | Engelsk |
---|---|
Artikelnummer | 108537 |
Tidsskrift | Economics Letters |
Vol/bind | 186 |
ISSN | 0165-1765 |
DOI | |
Status | Udgivet - jan. 2020 |
Antal downloads er baseret på statistik fra Google Scholar og www.ku.dk
ID: 255049340