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Rational Inattention Dynamics: Inertia and Delay in Decision-Making

Listed author(s):
  • Jakub Steiner
  • Colin Stewart
  • Filip Matejka

We solve a general class of dynamic rational-inattention problems in which an agent repeatedly acquires costly information about an evolving state and selects actions. The solution resembles the choice rule in a dynamic logit model, but it is biased towards an optimal default rule that is independent of the realized state. The model provides the same fit to choice data as dynamic logit, but, because of the bias, yields different counterfactual predictions. We apply the general solution to the study of (i) the status quo bias; (ii) inertia in actions leading to lagged adjustments to shocks; and (iii) the tradeoff between accuracy and delay in decision-making.

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File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-559.pdf
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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-559.

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Length: Unknown pages
Date of creation: 04 May 2016
Handle: RePEc:tor:tecipa:tecipa-559
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  1. Gautam Gowrisankaran & Marc Rysman, 2012. "Dynamics of Consumer Demand for New Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 120(6), pages 1173-1219.
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  4. Filip Matejka & Colin Stewart & Jakub Steiner, 2015. "Rational Inattention Dynamics: Inertia and Delay in Decision-Making," 2015 Meeting Papers 307, Society for Economic Dynamics.
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  9. Bartosz Mackowiak & Mirko Wiederholt, 2009. "Optimal Sticky Prices under Rational Inattention," American Economic Review, American Economic Association, vol. 99(3), pages 769-803, June.
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  11. Woodford, Michael, 2009. "Information-constrained state-dependent pricing," Journal of Monetary Economics, Elsevier, vol. 56(S), pages 100-124.
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