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A model of state aggregation

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Abstract

In this paper, due to limited attention and lack of focus, an agent has tendency toward framing of available information that drives her to see the state space as a collection of the events or “small worlds” related to a particular ambience, which we call a state aggregation. This work axiomatizes the model of state aggregation, shows how to recover the structure of the “small worlds” together with beliefs and utility from the individual demand for assets, and provides comparative statics and revealed preference restrictions.

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Acknowledgements

This paper is adapted from parts of my PhD dissertation at UCLA. I thank co-editor Mark Machina and anonymous referees for their constructive comments that led to significant improvement of the paper. I am deeply indebted to Murali Agastya, Jay Lu, Rosa Matzkin, and Bill Zame for their guidance and support. I also have benefited from comments by Kadir Atalay, Stefano Fiorin, Itzhak Gilboa, Jian Li, and Marciano Siniscalchi as well as audiences at McGill, UNSW, USyd, UCLA, ITAM, ES NASM 2016, Spring 2016 MWET, ES Latin American Workshop in Economic Theory 2015, and the 10th Annual Economic Graduate Student Conference at WUSTL.

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  1. Office 638 Social Sciences Building A02, University of Sydney, Sydney, NSW, 2006, Australia

    Anastasia Burkovskaya

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  1. Anastasia Burkovskaya
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Correspondence to Anastasia Burkovskaya.

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Burkovskaya, A. A model of state aggregation. Econ Theory 73, 121–149 (2022). https://doi.org/10.1007/s00199-020-01326-5

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