Logit, CES, and Rational Inattention

Research output: Working paperResearch

Standard

Logit, CES, and Rational Inattention. / Matveenko, Andrei.

2017.

Research output: Working paperResearch

Harvard

Matveenko, A 2017 'Logit, CES, and Rational Inattention'. https://doi.org/10.2139/ssrn.2990774

APA

Matveenko, A. (2017). Logit, CES, and Rational Inattention. RePEc (Research Papers in Economics) No. 593 https://doi.org/10.2139/ssrn.2990774

Vancouver

Matveenko A. Logit, CES, and Rational Inattention. 2017 Jun 22. https://doi.org/10.2139/ssrn.2990774

Author

Matveenko, Andrei. / Logit, CES, and Rational Inattention. 2017. (RePEc (Research Papers in Economics); No. 593).

Bibtex

@techreport{c1dc89bfacf945658ea4e551a0869b5b,
title = "Logit, CES, and Rational Inattention",
abstract = "We study 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 multiple 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 multiple 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 coeficients of the CES utility function. Specifically, we provide a correspondence between parameters of the CES utility function, prior knowledge and marginal cost of information.",
keywords = "Faculty of Social Sciences, discrete choice, rational inattention, CES utility function, multinomial logit, representative consumer, demand system",
author = "Andrei Matveenko",
year = "2017",
month = jun,
day = "22",
doi = "10.2139/ssrn.2990774",
language = "English",
series = "RePEc (Research Papers in Economics)",
number = "593",
type = "WorkingPaper",

}

RIS

TY - UNPB

T1 - Logit, CES, and Rational Inattention

AU - Matveenko, Andrei

PY - 2017/6/22

Y1 - 2017/6/22

N2 - We study 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 multiple 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 multiple 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 coeficients of the CES utility function. Specifically, we provide a correspondence between parameters of the CES utility function, prior knowledge and marginal cost of information.

AB - We study 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 multiple 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 multiple 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 coeficients of the CES utility function. Specifically, we provide a correspondence between parameters of the CES utility function, prior knowledge and marginal cost of information.

KW - Faculty of Social Sciences

KW - discrete choice

KW - rational inattention

KW - CES utility function

KW - multinomial logit

KW - representative consumer

KW - demand system

U2 - 10.2139/ssrn.2990774

DO - 10.2139/ssrn.2990774

M3 - Working paper

T3 - RePEc (Research Papers in Economics)

BT - Logit, CES, and Rational Inattention

ER -

ID: 217380682