Bargaining with Rational Inattention
125 Pages Posted: 25 Apr 2017 Last revised: 14 Mar 2019
Date Written: March 4, 2019
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: Suggested Citation