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Discussion Paper Details

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Title: Survey: Rational Inattention, a Disciplined Behavioral Model

Author(s): Bartosz Adam Mackowiak, Filip Matejka and Mirko Wiederholt

Publication Date: October 2018

Keyword(s): Behavioral economics, endogenous information acquisition and rational inattention

Programme Area(s): International Macroeconomics and Finance, Macroeconomics and Growth and Monetary Economics and Fluctuations

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.

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Bibliographic Reference

Mackowiak, B, Matejka, F and Wiederholt, M. 2018. 'Survey: Rational Inattention, a Disciplined Behavioral Model'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13243