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Survey: Rational Inattention, a Disciplined Behavioral Model

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  • Mackowiak, Bartosz Adam
  • Matejka, Filip
  • Wiederholt, Mirko

Abstract

A recent growing body of studies shows that many important phenomena in economics are, or can be, driven by the fact that humans cannot digest all available information, but they can choose which exact pieces of information to attend to. Such phenomena span macroeconomics, finance, labor economics, political economy, and beyond. People's choices of what information to attend to, i.e., what optimal heuristic to use, are driven by current economic conditions and determine the form of mistakes that they make. Combining these behavioral insights together with optimizing approaches of classical economics yields a new generally applicable model. The implied behavior features numerous types of empirically supported departures from existing classical models, is potentially highly practical for answering policy questions, and motivates further empirical work. One distinction from most models in behavioral economics is that this model allows for studying the adaptation of agents' behavioral biases due to changes in policy or economic conditions.

Suggested Citation

  • Mackowiak, Bartosz Adam & Matejka, Filip & Wiederholt, Mirko, 2018. "Survey: Rational Inattention, a Disciplined Behavioral Model," CEPR Discussion Papers 13243, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13243
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    References listed on IDEAS

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    Cited by:

    1. Jianjun Miao & Dongling Su, 2019. "Asset Market Equilibrium under Rational Inattention," Boston University - Department of Economics - Working Papers Series WP2019-09, Boston University - Department of Economics.
    2. Luciano Pomatto & Philipp Strack & Omer Tamuz, 2018. "The cost of information," Papers 1812.04211, arXiv.org, revised Feb 2019.
    3. Tommaso Denti & Massimo Marinacci & Luigi Montrucchio, 2018. "Rational Inattention and Rate Distortion Theory: A Teaching Note," Working Papers 630, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    4. Ehrmann, Michael & Gaballo, Gaetano & Hoffmann, Peter & Strasser, Georg, 2019. "Can more public information raise uncertainty? The international evidence on forward guidance," Working Paper Series 2263, European Central Bank.
    5. Avdic, Daniel & Lagerqvist, Bo & Propper, Carol & Vikström, Johan & von Hinke, Stephanie, 2019. "Information shocks and provider responsiveness: evidence from interventional cardiology," CEPR Discussion Papers 13627, C.E.P.R. Discussion Papers.
    6. Jianjun Miao, 2019. "Multivariate LQG Control under Rational Inattention in Continuous Time," Boston University - Department of Economics - Working Papers Series WP2019-06, Boston University - Department of Economics.

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    Keywords

    Behavioral economics; endogenous information acquisition; rational inattention;

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