DP10720 Rational Inattention Dynamics: Inertia and Delay in Decision-Making
|Author(s):||Filip Matejka, Jakub Steiner, Colin Stewart|
|Publication Date:||July 2015|
|Keyword(s):||adjustment delay, dynamic logit, information acquisition, rational inattention|
|JEL(s):||D81, D83, D90|
|Programme Areas:||Industrial Organization, Macroeconomics and Growth|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10720|
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 depends only on the history of actions, not on the realized state. 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.