Working Paper: CEPR ID: DP13243
Authors: Bartosz Adam Mackowiak; Filip Matejka; Mirko Wiederholt
Abstract: A recent growing body of studies shows that many important phenomena ineconomics are, or can be, driven by the fact that humans cannot digest allavailable information, but they can choose which exact pieces of informationto attend to. Such phenomena span macroeconomics, finance, labor economics,political economy, and beyond. People's choices of what information to attendto, i.e., what optimal heuristic to use, are driven by currenteconomic conditions and determine the form of mistakes that they make.Combining these behavioral insights together with optimizing approaches ofclassical economics yields a new generally applicable model. The impliedbehavior features numerous types of empirically supported departures fromexisting classical models, is potentially highly practical for answeringpolicy questions, and motivates further empirical work. One distinction frommost models in behavioral economics is that this model allows for studyingthe adaptation of agents' behavioral biases due to changes in policyor economic conditions.
Keywords: Rational Inattention; Behavioral Economics; Endogenous Information Acquisition
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Rational inattention (D80) | Systematic biases in decision-making (D91) |
| Economic environment (E66) | Decision-making processes of agents (D79) |
| Changes in policy or economic conditions (O24) | Altered biases exhibited by agents (D91) |
| Attention allocation (D91) | Price setting (L11) |
| Attention allocation (D91) | Market responses (D49) |
| Idiosyncratic shocks (D89) | Firms' response strength (L20) |
| Idiosyncratic shocks (D89) | Choice of information to attend to (D87) |
| Aggregate shocks (E19) | Firms' response strength (L20) |