Costly Information and Random Choice

Abstract

We consider an agent who decides whether to employ an information structure to learn about a payoff-relevant state of the world before making a decision. Information is costly either because (1) the agent has to wait for the availability of the information structure and is impatient or because (2) she has to pay a fixed and menu-independent cost to use the information structure. For each menu of options we assume the analyst observes random choice from the menu and whether the agent acquires the information. We give a full characterization of when this random choice is consistent with either of the cases (1) or (2) and show how the analyst can distinguish between the two cases using random choice data. We show in either case how random choice data allows identification of the information structure the agent can employ and respectively discount factor or additive costs.