Logit, CES, and rational inattention

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985998%3A_____%2F20%3A00524646" target="_blank" >RIV/67985998:_____/20:00524646 - isvavai.cz</a>
Result on the web
<a href="https://doi.org/10.1016/j.econlet.2019.108537" target="_blank" >https://doi.org/10.1016/j.econlet.2019.108537</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1016/j.econlet.2019.108537" target="_blank" >10.1016/j.econlet.2019.108537</a>

Result language
angličtina
Original language name
Logit, CES, and rational inattention
Original language description
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.
Czech name
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Czech description
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Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
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OECD FORD branch
50201 - Economic Theory

Project
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Continuities
I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Publication year
2020
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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