Unifying Revealed Preference and Revealed Rational Inattention

TL;DR

This paper unifies revealed preference and revealed rational inattention theories, providing a computational framework to assess rationality of decision-making and demonstrating its application on YouTube data with high fit to the model.

Contribution

It establishes an equivalence between revealed preference and revealed rational inattention, extending robustness measures and applying them to real-world data.

Findings

YouTube user engagement data fits the rational inattention model well.

The unification enables new robustness measures for decision rationality.

Numerical experiments are fully reproducible.

Abstract

This paper unifies two key results from economic theory, namely, revealed rational inattention and classical revealed preference. Revealed rational inattention tests for rationality of information acquisition for Bayesian decision makers. On the other hand, classical revealed preference tests for utility maximization under known budget constraints. Our first result is an equivalence result - we unify revealed rational inattention and revealed preference through an equivalence map over decision parameters and partial order for payoff monotonicity over the decision space in both setups. Second, we exploit the unification result computationally to extend robustness measures for goodness-of-fit of revealed preference tests in the literature to revealed rational inattention. This extension facilitates quantifying how well a Bayesian decision maker's actions satisfy rational inattention. Finally, we illustrate the significance of the unification result on a real-world YouTube dataset comprising thumbnail, title and user engagement metadata from approximately 140,000 videos. We compute the Bayesian analog of robustness measures from revealed preference literature on YouTube metadata features extracted from a deep auto-encoder, i.e., a deep neural network that learns low-dimensional features of the metadata. The computed robustness values show that YouTube user engagement fits the rational inattention model remarkably well. All our numerical experiments are completely reproducible.