Implications of rational inattention

Research output: Contribution to journalArticle

817 Scopus citations

Abstract

A constraint that actions can depend on observations only through a communication channel with finite Shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems. The resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical, while the implications for policy are different enough to be interesting.

Original languageEnglish (US)
Pages (from-to)665-690
Number of pages26
JournalJournal of Monetary Economics
Volume50
Issue number3
DOIs
StatePublished - Apr 1 2003

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Control theory
  • Inertia
  • Information theory
  • Sticky prices

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