Survey: Rational Inattention, a Disciplined Behavioral Model

45 Pages Posted: 15 Oct 2018 Last revised: 22 Oct 2018

See all articles by Bartosz Maćkowiak

Bartosz Maćkowiak

European Central Bank (ECB)

Filip Matějka

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Mirko Wiederholt

Sciences Po

Date Written: October 2018

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.

Keywords: Behavioral economics, endogenous information acquisition, rational inattention

Suggested Citation

Maćkowiak, Bartosz and Matějka, Filip and Wiederholt, Mirko, Survey: Rational Inattention, a Disciplined Behavioral Model (October 2018). CEPR Discussion Paper No. DP13243. Available at SSRN: https://ssrn.com/abstract=3266436

Bartosz Maćkowiak (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Filip Matějka

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

Mirko Wiederholt

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

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