ERC INATTENTION

Behavioral and Policy Implications of Rational Inattention (INATTENTION)*

Program:            H2020, ERC Starting Grant
Granting Body:    European Commission
Contract No.:      678081
Coordinator:       Filip Matějka**
Starting Date:     April 2016
Ending Date:       March 2021

ANNOTATION:

This proposal outlines agenda which aims to improve our understanding of policies in environments with cognitively limited agents. It seeks to extend and apply the theory of rational inattention developed in macroeconomics. Citizens are inattentive to details of tax codes, government bureaucrats cannot inspect all data about people in need, and voters are highly uninformed about politicians’ campaign platforms. The agenda is specifically targeted at applications where human inability to digest all available information has strong implications for public policy formation. It falls into three broad parts. First (macroeconomics), the proposed research will develop a new model of risk-sharing in a typical modern-macro setting with heterogeneous agents. Instead of incentive constraints, the imperfections will be driven by the government’s or citizens’ inability to process all available information. What are the properties of the resulting system of redistribution? Why do taxes often take a simple form? Can minorities be left behind because they attract less of the government’s attention? Second (behavioral economics), it will extend the rational inattention theory to model how agents simplify multidimensional features of the environment. Among many applications, the theory is likely to provide an alternative explanation for mental accounting, when people have separate budgets for different types of expenditures (critical to consumption decisions, especially of the poor), and for salience of different elements of the tax code. Third (political economy), it will develop a unified framework to study implications of voters’ rational inattention (selective ignorance) for the outcomes of political processes, such as for popular demand for misguided policies, public good provision, and the complexity of announced platforms. Voters’ information acquisition and fragmented information processing will be studied in a field experiment.

PUBLISHED PAPERS:

Filip Matějka, and Guido Tabellini. 2020. “Electoral Competition with Rationally Inattentive Voters.” Journal of the European Economic Association, 19(3): 1899-1935. Repository: https://asep.lib.cas.cz/arl-cav/cs/detail-cav_un_epca-0542972-Electoral-competition-with-rationally-inattentive-voters/

Godfrey, Keller, Vladimír Novák, and Tim Willems. 2019. “A Note on Optimal Experimentation Under Risk Aversion.” Journal of Economic Theory, 179(January): 476–487. Repository: http://hdl.handle.net/11104/0292873

Jung, Junehyuk, Jeong Ho (John) Kim, Filip Matějka, and Christopher A. Sims. 2019. “Discrete Actions in Information-Constrained Decision Problems.”  Review of Economic Studies, 86(6): 2643–2667. Repository (under 1-year embargo)

Kőszegi, Botond, and Filip Matějka. 2020. “Choice Simplification: A Theory of Mental Budgeting and Naive Diversification.” Quarterly Journal of Economics, 135(2): 1153–1207. Repository: http://hdl.handle.net/11104/0308906

DISSEMINATION:

3rd Conference on Rational Inattention and Related Topics

*This project has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant agreement No 678081).

** Filip Matejka's personal website: http://home.cerge-ei.cz/matejka/index.html