On Rational Inattention with Arbitrary Choice Sets

TL;DR

This paper models rational inattention as a nested regularized optimal transport problem, extending existing results to arbitrary choice sets using entropic optimal transport, thereby broadening the theoretical framework of decision-making under limited attention.

Contribution

It introduces a novel formulation of rational inattention as a nested optimal transport problem applicable to any choice set, expanding prior models.

Findings

Established the connection between rational inattention and entropic optimal transport.

Extended previous results to arbitrary choice sets.

Provided a unified framework for analyzing decision-making under limited attention.

Abstract

This paper points out that rational inattention is a nested regularized optimal transport problem. We use entropic optimal transport to establish the main results in Matejka and McKay (2015) and Caplin, Dean, and Leahy (2019) and extend them to arbitrary choice sets.