Bargaining with Rational Inattention

125 Pages Posted: 25 Apr 2017 Last revised: 14 Mar 2019

See all articles by Doron Ravid

Doron Ravid

University of Chicago - Department of Economics

Date Written: March 4, 2019

Abstract

A seller makes repeated offers to a rationally inattentive buyer (Sims, 2003). The seller knows the product's quality, which is random. The buyer needs to pay attention to the product's quality and the seller's offers. I show that there is delay in trade that decreases in product quality, and that the buyer obtains a significant surplus, which remains significant in a frequent-offers environment with vanishing attention costs.

Keywords: Complexity, bargaining, rational inattention, entropy reduction.

JEL Classification: C78, D42, D86

Suggested Citation

Ravid, Doron, Bargaining with Rational Inattention (March 4, 2019). Available at SSRN: https://ssrn.com/abstract=2957890 or http://dx.doi.org/10.2139/ssrn.2957890

Doron Ravid (Contact Author)

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

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