Rational Inattention: A Review

We review the recent literature on rational inattention, identify main theoretical mechanisms, and explain how it helps us understand a variety of phenomena across fields economics. The theory inattention assumes that agents cannot process all available information, but they can choose which exact pieces information to attend to. Several important results in economics have been built around imperfect information. Nowadays, many more forms than ever before are due new technologies, yet we able digest little it. Which form possess act upon is thus largely determined by pay attention These choices driven current economic conditions imply behavior features numerous empirically supported departures from standard models. Combining these insights about human limitations with optimizing approach neoclassical yields new, generally applicable model. (JEL D83, D91, E71)