Rational Inattention via Ignorance Equivalence (with Roc Armenter and Zachary Stangebye)
We introduce the concept of the ignorance equivalent to effectively summarize the payoff possibilities in a finite Rational Inattention problem. The ignorance equivalent is a unique fictitious action that is weakly preferable to all existing learning strategies and yet generates no new profitable learning opportunities when added to the menu of choices. We fully characterize the relationship between the ignorance equivalent and the optimal learning strategies. Agents with heterogeneous priors self-select their own ignorance equivalent, which gives rise to an expected-utility analogue of the Rational Inattention problem. The approach provides new insights for menu expansion, the formation of consideration sets, the value of information, and belief elicitation. In a strategic game of contract choice, the ignorance equivalent emerges naturally in equilibrium.
I express an agent's learning ability through a maximal menu of zero welfare. A simple duality links this zero set and posterior-separable learning costs that are common in the Rational Inattention literature. The novel representation helps to elicit the agent's prior belief and perceived learning ability in a simple, cost-effective and versatile way. Relative to existing approaches, the protocol also works when learning cannot be tightly controlled, and when learning produces lasting effects that alter the beliefs or costs in subsequent tasks. An experimental implementation is planned, and the manuscript will be updated once the findings are available.
I model access to influence as a two-sided matching market between a continuum of experts and two vertically differentiated gatekeepers under sequential directed search. Real-world examples include academic publishing, venture capital, job search or political agenda setting. The equilibrium is unique and exhibits red tape in the form of wasteful fees or excessive delay. However, only the top gatekeeper artificially delays matches to increase competition, a prediction that matches observed patterns within academic publishing. This delay at the top often improves equilibrium sorting and thereby enhances aggregate match surplus.
Roc Armenter, Michèle Müller-Itten and Zachary Stangebye, Geometric Methods of Finite Rational Inattention. Quantitative Economics (2024). doi: 10.3982/QE2050.
Leonardo Bertassello, Marc F. Müller, Adam Wiechman, Gopal Penny, Marta Tuninetti and Michèle Müller-Itten, "Food demand displaced by global refugee migration influences water use in already water stressed countries". Nature Communications (2023).
Müller-Itten, Michèle and Öry, Aniko, "Mentoring and the Dynamics of Affirmative Action". American Economic Journal: Public Policy (2022).
Penny, Gopal, Müller-Itten, Michèle, De Los Cobos, Gabriel, Mullen, Connor and Müller, Marc F., “Trust and transboundary groundwater cooperation”, Advances in Water Resources (2021). doi: 10.1016/j.advwatres.2021.104019.
Roche, Kevin, Müller-Itten, Michèle, Dralle, David, Bolster, Diogo and Müller, Marc F., On climate change, water variability and conflicts. Proceedings of the National Academy of Sciences of the United States of America (2020). doi: 10.1073/pnas.1914829117.
Müller, Marc F., Müller-Itten, Michèle and Gorelick, Steven M., How Jordan and Saudi Arabia are avoiding a tragedy of the commons over shared groundwater. Water Resources Research (2017). doi: 10.1002/2016WR020261.
Learning with Risk Aversion
2018-2021 National Science Foundation Grant CNH-S-1824951 ($749,932). What does it take to cooperate over transboundary groundwater resources? – with Müller, Marc F., Bolster, Diogo and Huber, Bruce.