The Two-Period Rational Inattention Model: Accelerations and Analyses
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This paper demonstrates the properties of, and a solution method for, the more general two-period Rational Inattention model of Sims (Rational inattention: A research agenda, 2006). It is shown that the corresponding optimization problem is convex and can be solved very quickly. This paper also demonstrates a computational tool well-suited to solving Rational Inattention models and further illustrates a critique raised in Sims (Rational inattention: A research agenda, 2006) regarding Rational Inattention models whose solutions assume parametric formulations rather than solve for their optimally-derived, non-parametric counterparts.
KeywordsRational inattention Information-processing constraints Numerical optimization
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