PhD candidate specializing in microeconomic theory at the University of Toronto
This paper uses an axiomatic foundation to create a new measure for the cost of learning that allows for multiple perceptual distances in a single choice environment so that some events can be harder to differentiate between than others. The new measure maintains the tractability of Shannon's classic measure but produces richer choice predictions and identifies a new form of informational bias significant for welfare and counterfactual analysis.
This note studies the implications of perceptual distance for choice behavior in models of rational inattention. Using a measure for the cost of information that is more flexible than Shannon's standard measure of entropy, this note creates a new foundation for `non-compensatory' behavior, whereby increasing the value of an option can result in a lower chance of it being selected, and demonstrates novel predictions for the formation of consideration sets. This note thus connects the literatures on rational inattention and heuristic choice rules and presents new challenges for revealed preference analysis.