Main idea | the heuristic of catgeory thinking | exclude the mediocre option in a menu to think hard
Abstract: We study preferences over menus, which can be represented as if an individual ex-post experiences anxiety in costly information acquisition and adopts the heuristic of category thinking. With the heuristic of category thinking, the individual considers certain "go-to" options and uncertain options in two separate categories. The anxiety generates a tendency to forego thinking and choose a "go-to'' option from the menu. Thus, ex-ante, the individual may desire commitment by excluding a "go-to'' option. The anxiety is modeled in the representation by ex-post information costs in utility being higher than the ex-ante ones. It is behaviorally characterized by the key axiom weak preference for flexibility. The category thinking heuristic is reflected by the axiom weak no compromise, which enables the ex-post information costs to be uniquely revealed by the threshold "go-to'' options.
Main idea | ambiguity aversion urges sufficiently informative signals | but prohibits information acquisition when costs are high
Abstract: We study the role of ambiguity aversion in the model of rational inattention. Multiple priors and the prior-by-prior Bayesian updating generate dynamic inconsistency between the ex-ante stage of choosing information structures and the ex-post stage of choosing actions. The individual applies consistent planning for reconciliation. In the ex-post stage, ambiguity aversion creates information inertia: for a range of signals, the individual hedges between actions; therefore, the action strategy does not reflect the received signal. In the ex-ante stage, ambiguity aversion turns out to be a double-edged sword for information acquisition. Although ambiguity aversion urges the individual to acquire sufficiently informative signals, it prohibits information acquisition when information costs are high.
Main idea | lower labor income tax rate for the prosperity of the information market
Abstract: This paper studies optimal labor income taxation when households acquire costly information about their productivity. Households are uncertain about their true productivity. To improve their labor supply, they allocate costly attention to the news from information providers of multiple sources in a fully competitive information market. Households benefit from more information providers in the market. However, when allocating attention, they do not consider that their attention allocation affects the aggregate information supply. Therefore, there exists pecuniary externality in the information market. The government sets the optimal non-linear labor income tax regime to internalize the pecuniary externality for the prosperity of the information market and to minimize the distortion of the information market. The optimal labor income tax rate distribution to the household's true productivity is U-shaped: the productivity uncertainty drives less dispersion, while the information market lowers the tax rates for all productivity levels.