Paper by Bartosz Mackowiak, Filip Matejka and Mirko Wiederholt: “This survey paper argues that rational inattention matters. It is likely to become an important part of Economics, because it bridges a gap between classical economics and behavioral economics. Actions look behavioral, since agents cannot process all available information; yet agents optimize in the sense that they try to deal optimally with their cognitive limitations – hence the term ”rational inattention.” We show how rational inattention describes the adaptation of agents’ behavioral biases due to policy and other changes of the economic environment. Then, we survey the existing literature, and discuss what the unifying mechanisms behind the results in these papers are. Finally, we lay out implications for policy, and propose what we believe are the most fruitful steps for future research in this area. Economics is about adjustments to scarcity.
Rational inattention studies adjustments to scarcity of attention. Understanding how people summarize, filter, and digest the abundant available information is key to understanding many phenomena in economics. Several crucial findings in economics, even some whole subfields, have been built around the assumptions of imperfect or asymmetric information. However, nowadays, many more forms of information than ever before are available due to new technologies, yet we are able to digest little of it. Which form of imperfect information we possess and act upon is thus largely not determined by which information is given to us, but by which information we choose to attend to….(More)”.