Discrete Actions in Information-Constrained Decision Problems

Jung, Junehyuk; Kim, Jeong-Ho; Matějka, Filip; Sims, Christopher A.

doi:10.1093/restud/rdz011

Cited by 46 publications

(57 citation statements)

References 41 publications

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“…In Sims, this is not the case, and quickly problems become extremely hard to solve. For instance, in Jung, Kim, Matějka, and Sims (2015), the solution has atoms -it is non-smooth. One needs a computer to solve it.…”

Section: Information Theory: a Crash Coursementioning

confidence: 99%

Behavioral Inattention

Gabaix¹

2017

102

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Section: Information Theory: a Crash Coursementioning

confidence: 99%

Behavioral Inattention

Gabaix¹

2017

102

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“…Discretization has received important theoretical foundations based on rational inat-tention (Matejka, 2015;Matejka and McKay, 2015;Caplin et al, 2018;Stevens, 2019;Jung et al, 2019). Lab experiments confirm this type of behavior for price setting decisions (see Khaw et al, 2017, for such evidence).…”

Section: Introductionmentioning

confidence: 98%

“…SeeKrugman (1998);Eggertsson and Woodford (2003); Werning (2012).2 See Coibion et al (2018b) for a survey of recent evidence.3 This is consistent with models of imperfect information, asCoibion and Gorodnichenko (2012) show.4 See, e.g.,Caplin et al (2018),Jung et al (2019), andMackowiak et al (2018) for a recent survey.…”

mentioning

confidence: 99%

What Matters in Households’ Inflation Expectations?

Andrade¹,

Gautier²,

Mengus³

2020

Federal Reserve Bank of Boston Research Department Working Papers

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We provide evidence that households discretize their inflation expectations so that what matters for durable consumption decisions is the broad inflation regime they expect. Using survey data, we document that a large share of the adjustment in the average inflation expectation comes from the change in the share of households expecting stable prices; these households also consume relatively less than the ones expecting positive inflation. In contrast, variations of expectations across households expecting a positive inflation rate are associated with much smaller differences in individual durable consumption choices. We illustrate how this mitigates the expectation channel of monetary policy.

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“…Rational inattention models have been studied in much greater generality than those involving quadratic objective functions and Gaussian distributions (see References [ 20 , 21 , 22 , 23 ]). This literature is too broad to be fully surveyed here; we will provide only a very brief summary of one of its main implications.…”

Section: Entropy In Economicsmentioning

confidence: 99%

A Survey on Entropy and Economic Behaviour

Hellman

Peretz

2020

Entropy

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Entropy plays a significant role in the study of games and economic behaviour in several ways. A decision maker faced with an n-fold repetition of a decision-making problem needs to apply strategies that become increasingly complex as n increases. When several players are involved in selecting strategies in interactive games, bounds on the memories and cognitive capacities of the players can affect possible outcomes. A player who can recall only the last k periods of history is said to have bounded recall of capacity k. We present here a brief survey of results of games played by players with different bounded recall capacities, in particular those indicating surprisingly strong relations between memory and entropy in the study of the min-max values of repeated games with bounded recall. In addition, we consider uses of entropy in measuring the value of information of noisy signal structures, also known as experiments. These are represented by stochastic matrices, with the rows representing states of the world and the columns possible signals. The classic ordering of experiments, due to David Blackwell and based on decision-making criteria, is a partial ordering, which has led to attempts to extend this ordering to a total ordering. If a decision maker has a prior distribution over the states, receipt of a signal yields a posterior. The difference between the entropy of a prior and the expected entropy of the set of possible posteriors has been proposed as a natural extension of the Blackwell ordering. We survey this alongside the theory of rational inattention, which posits that, since individuals have limited attention, they do not always follow every single piece of economic news in planning their economic behaviour. By modelling attention limits as finite channel capacity in the sense of Shannon, economists have developed a theory that explains a range of observed economic behavioural phenomena well.

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Discrete Actions in Information-Constrained Decision Problems

Cited by 46 publications

References 41 publications

Behavioral Inattention

Behavioral Inattention

What Matters in Households’ Inflation Expectations?

A Survey on Entropy and Economic Behaviour

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