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Rational Inattention: A Review

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

Abstract

We review the recent literature on rational inattention, identify the main theoretical mechanisms, and explain how it helps us understand a variety of phenomena across fields of economics. The theory of rational inattention assumes that agents cannot process all available information, but they can choose which exact pieces of information to attend to. Several important results in economics have been built around imperfect information. Nowadays, many more forms of information than ever before are available due to new technologies, and yet we are able to digest little of it. Which form of imperfect information we possess and act upon is thus largely determined by which information we choose to attend to. These choices are driven by current economic conditions and imply behavior that features numerous empirically supported departures from standard models. Combining these insights about human limitations with the optimizing approach of neoclassical economics yields a new, generally applicable model.

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  • Mackowiak, Bartosz Adam & Matejka, Filip & Wiederholt, Mirko, 2020. "Rational Inattention: A Review," CEPR Discussion Papers 15408, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:15408
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    Cited by:

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    2. Francesco Capozza & Ingar Haaland & Christopher Roth & Johannes Wohlfart, 2021. "Studying Information Acquisition in the Field: A Practical Guide and Review," CEBI working paper series 21-15, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    3. Ellison, Martin & Macaulay, Alistair, 2021. "A rational inattention unemployment trap," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
    4. Mikosch, Heiner & Roth, Christopher & Sarferaz, Samad & Wohlfart, Johannes, 2021. "Uncertainty and Information Acquisition: Evidence from Firms and Households," CEPR Discussion Papers 16765, C.E.P.R. Discussion Papers.
    5. Wenting Song & Samuel Stern, 2022. "Firm Inattention and the Efficacy of Monetary Policy: A Text-Based Approach," Staff Working Papers 22-3, Bank of Canada.
    6. Oliver Pfauti, 2021. "Inflation -- who cares? Monetary Policy in Times of Low Attention," Papers 2105.05297, arXiv.org, revised Jul 2022.
    7. Takashi Ui, 2022. "Impacts of Public Information on Flexible Information Acquisition," Papers 2204.09250, arXiv.org, revised Apr 2022.
    8. Howard, Greg, 2021. "A check for rational inattention," MPRA Paper 108243, University Library of Munich, Germany.
    9. Roberto Rozzi, 2021. "Competing Conventions with Costly Information Acquisition," Games, MDPI, vol. 12(3), pages 1-29, June.
    10. Annie Liang & Xiaosheng Mu & Vasilis Syrgkanis, 2022. "Dynamically Aggregating Diverse Information," Econometrica, Econometric Society, vol. 90(1), pages 47-80, January.
    11. Chen Lian, 2021. "Mistakes in Future Consumption, High MPCs Now," NBER Working Papers 29517, National Bureau of Economic Research, Inc.

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    Keywords

    Information Choice; rational inattention;

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    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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