Arna Olafsson, Michaela Pagel, 07 August 2018

Theories of rational inattention argue that individuals incur costs when they look for information, and that they compare these costs with the expected benefits from that information. This column uses empirical evidence on online logins to bank accounts to show that in this context, attention tends to be selective – subject to an 'ostrich effect' that avoids the discovery of bad news, for example – rather than rational. This selective attention may intensify individual financial problems such as debt traps.

Alberto Cavallo, Guillermo Cruces, Ricardo Perez-Truglia, 10 November 2014

Although central banks have a natural desire to influence household inflation expectations, there is no consensus on how these expectations are formed or the best ways to influence them. This column presents evidence from a series of survey experiments conducted in a low-inflation context (the US) and a high-inflation context (Argentina). The authors find that dispersion in household expectations can be explained by the cost of acquiring and interpreting inflation statistics, and by the use of inaccurate memories about price changes of specific products. They also provide recommendations for central bank communication strategies. 

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