An equivalence between rational inattention problems and complete-information conformity games

0557332 - NHU-C 2023 RIV CZ eng V - Research Report
Ilinov, Pavel - Jann, Ole
An equivalence between rational inattention problems and complete-information conformity games.
Prague: CERGE-EI, 2022. 10 s. CERGE-EI Working Paper Series, 719. ISSN 2788-0443
R&D Projects: GA MŠMT(CZ) SVV260611
Grant - others:UK(CZ) GAUK 323221; UK(CZ) PRIMUS/20/HUM/019
Institutional support: Cooperatio-COOP
Keywords : conformity * equivalence * rational inattention
OECD category: Applied Economics, Econometrics
https://www.cerge-ei.cz/pdf/wp/Wp719.pdf

We consider two types of models: (i) a rational inattention problem (as known from the literature) and (ii) a conformity game, in which fully informed players find it costly to deviate from average behavior. We show that these problems are equivalent to each other both from the perspective of the participant and the outside observer: Each individual faces identical trade-offs in both situations, and an observer would not be able to distinguish the two models from the choice data they generate. We also establish when individual behavior in the conformity game maximizes welfare.
Permanent Link: http://hdl.handle.net/11104/0331371