The Two-Period Rational Inattention Model: Accelerations and Analyses

Abstract

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.

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Correspondence to Kurt F. Lewis.

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Lewis, K.F. The Two-Period Rational Inattention Model: Accelerations and Analyses. Comput Econ 33, 79–97 (2009). https://doi.org/10.1007/s10614-008-9151-5

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Keywords

  • Rational inattention
  • Information-processing constraints
  • Numerical optimization