Identification and Estimation of A Rational Inattention Discrete Choice Model with Bayesian Persuasion

TL;DR

This paper develops a semi-parametric method to identify and estimate a rational inattention model with Bayesian persuasion, using market data and moment conditions, and applies it to analyze Fox News influence on voters.

Contribution

It introduces a novel two-step estimation approach for a rational inattention model with Bayesian persuasion, reducing computational complexity and enabling empirical analysis.

Findings

Persuasion affects voters with partial college education by increasing welfare dispersion.

No significant persuasion effect on voters with high school education.

Persuasion decreases welfare dispersion among bachelor's degree voters.

Abstract

This paper studies the semi-parametric identification and estimation of a rational inattention model with Bayesian persuasion. The identification requires the observation of a cross-section of market-level outcomes. The empirical content of the model can be characterized by three moment conditions. A two-step estimation procedure is proposed to avoid computation complexity in the structural model. In the empirical application, I study the persuasion effect of Fox News in the 2000 presidential election. Welfare analysis shows that persuasion will not influence voters with high school education but will generate higher dispersion in the welfare of voters with a partial college education and decrease the dispersion in the welfare of voters with a bachelors degree.