Working Paper: CEPR ID: DP10720
Authors: 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 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.
Keywords: Adjustment; Delay; Dynamic Logit; Information Acquisition; Rational Inattention
JEL Codes: D81; D83; D90
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Timing of information acquisition (G14) | Decision inertia (D80) |
| Decision inertia (D80) | Lagged adjustments in response to shocks (E32) |
| High persistence in state transitions (C41) | Less likelihood to switch actions (D91) |
| Correlation between states across periods (C32) | Reliance on past actions (D91) |
| Reliance on past actions (D91) | Reinforcement of initial decisions (D91) |
| Costs associated with information acquisition (D83) | Trade-off between accuracy and delay in decision-making (D91) |
| Longer delays (C41) | Better decision outcomes (D91) |