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Rational thinking under costly information—Macroeconomic implications

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  • Gomes, Orlando

Abstract

The notion of optimized rational behavior in the formation of expectations is used in this note to study the dynamics of a simple macroeconomic model. In a setting where departures from stability are not possible under perfect foresight, the selection of an optimal degree of rationality may lead to the generation of long-term endogenous fluctuations.

Suggested Citation

  • Gomes, Orlando, 2012. "Rational thinking under costly information—Macroeconomic implications," Economics Letters, Elsevier, vol. 115(3), pages 427-430.
    • Handle: RePEc:eee:ecolet:v:115:y:2012:i:3:p:427-430
    DOI: 10.1016/j.econlet.2011.12.102
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    References listed on IDEAS

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    1. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1295-1328.
    2. Schonhofer, Martin, 1999. "Chaotic Learning Equilibria," Journal of Economic Theory, Elsevier, vol. 89(1), pages 1-20, November.
    3. Darby, Michael R, 1976. "Rational Expectations under Conditions of Costly Information," Journal of Finance, American Finance Association, vol. 31(3), pages 889-895, June.
    4. Orlando Gomes, 2010. "Ordinary Least Squares Learning And Nonlinearities In Macroeconomics," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 52-84, February.
    5. Bullard James, 1994. "Learning Equilibria," Journal of Economic Theory, Elsevier, vol. 64(2), pages 468-485, December.
    6. William Brock & Pietro Dindo & Cars Hommes, 2006. "Adaptive rational equilibrium with forward looking agents," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(3‐4), pages 241-278, September.
    7. Martin Schonhofer, "undated". "Chaotic Learning Equilibria," Computing in Economics and Finance 1997 121, Society for Computational Economics.
    8. Dudek, Maciej K., 2010. "A consistent route to randomness," Journal of Economic Theory, Elsevier, vol. 145(1), pages 354-381, January.
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    Cited by:

    1. Orlando Gomes, 2015. "Sentiment Cyclicality," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 9(2), pages 104-134, December.

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    More about this item

    Keywords

    Expectations; Information acquisition; Inflation dynamics; Rationality; Endogenous fluctuations; Stability;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium

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