Faculty of Economics and Business Administration Publications Database

Rational Inattention

Abstract: The idea of rational inattention is that individuals have a limited amount of attention and therefore have to decide how to allocate their attention. There is a vast amount of information that is, in principle, available to decision-makers (e.g. information published in books, magazines, newspapers, and scientific articles; information available on the Internet; knowledge available through colleagues, friends and family), but due to limited attention it is simply impossible to attend to all of this information. Therefore decision-makers have to choose which information to attend to carefully, which information to attend to less carefully, and which information to ignore. According to the theory of rational inattention, decision-makers take this decision optimally. The literature on rational inattention argues that the optimal allocation of attention by decision-makers can explain important features of economic data.
Year: 2010
Link External Source: Online Version
Book Title: The New Palgrave Dictionary of Economics, Online Edition
ISBN: 978-0333786765
Editor: Durlauf, Steven N. / Blume, Lawrence E.