Asymmetric Attention

We document that the expectations of households, firms, and professional forecasters in standard surveys simultaneously extrapolate from recent events underreact to new information. Existing models expectation formation, whether behavioral or rational, cannot account for these observations. develop a rational theory extrapolation based on limited attention, which is consistent with this evidence. In particular, we show limited, asymmetric attention procyclical variables can explain coexistence underreactions. illustrate mechanisms microfounded macroeconomic model, generates survey data, increases business cycle fluctuations. (JEL C53, D83, D84, E23, E27, E32)