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Rational Inattention Dynamics: Inertia and Delay in Decision-Making

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  • Jakub Steiner
  • Colin Stewart
  • Filip Matejka

Abstract

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.

Suggested Citation

  • Jakub Steiner & Colin Stewart & Filip Matejka, 2016. "Rational Inattention Dynamics: Inertia and Delay in Decision-Making," Working Papers tecipa-559, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-559
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    2. Jakub Steiner & Colin Stewart & Filip Matějka, 2017. "Rational Inattention Dynamics: Inertia and Delay in Decision‐Making," Econometrica, Econometric Society, vol. 85, pages 521-553, March.
    3. Benjamin Hébert & Michael Woodford, 2017. "Rational Inattention and Sequential Information Sampling," NBER Working Papers 23787, National Bureau of Economic Research, Inc.
    4. Xavier Gabaix & David Laibson, 2017. "Myopia and Discounting," NBER Working Papers 23254, National Bureau of Economic Research, Inc.
    5. Andrew Caplin & Mark Dean & John Leahy, 2017. "Rationally Inattentive Behavior: Characterizing and Generalizing Shannon Entropy," NBER Working Papers 23652, National Bureau of Economic Research, Inc.
    6. D. Pennesi, 2016. "Intertemporal discrete choice," Working Papers wp1061, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Chad Fulton, 2017. "Mechanics of Linear Quadratic Gaussian Rational Inattention Tracking Problems," Finance and Economics Discussion Series 2017-109, Board of Governors of the Federal Reserve System (U.S.).
    8. Mackowiak, Bartosz Adam & Matejka, Filip & Wiederholt, Mirko, 2016. "The Rational Inattention Filter," CEPR Discussion Papers 11237, C.E.P.R. Discussion Papers.
    9. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    10. repec:eee:gamebe:v:104:y:2017:i:c:p:131-145 is not listed on IDEAS
    11. S. Cerreia-Vioglio & F. Maccheroni & M. Marinacci & A. Rustichini, 2017. "Multinomial logit processes and preference discovery: inside and outside the black box," Working Papers 615, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    12. repec:eee:macchp:v2-1065 is not listed on IDEAS
    13. Lindbeck, Assar & Weibull, Jörgen, 2017. "Investment, Rational Inattention, and Delegation," Working Paper Series 1171, Research Institute of Industrial Economics.

    More about this item

    Keywords

    Rational inattention; stochastic choice; dynamic logit; information acquisition;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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