Discussion paper

DP13243 Survey: Rational Inattention, a Disciplined Behavioral Model

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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Citation

Mackowiak, B, F Matějka and M Wiederholt (2018), ‘DP13243 Survey: Rational Inattention, a Disciplined Behavioral Model‘, CEPR Discussion Paper No. 13243. CEPR Press, Paris & London. https://cepr.org/publications/dp13243