The Information Structuralist

Information theory in economics, Part II: Robustness

Posted in Echoes of Cybernetics, Economics, Games and Decisions, Information Theory by mraginsky on July 20, 2012

As we have seen in Part I, the rational inattention framework of Christopher Sims aims to capture the best a rational agent can do when his capacity for processing information is limited. This rationally inattentive agent, however, has no reason to question his statistical model. In this post we will examine the robustness framework of Thomas Sargent, which deals with the issue of model uncertainty, but does not assume any capacity limitations.