papers in progress
Modeling Rational Memory
In the past, economic modelers have struggled to incorporate the limits of human memory into their models in ways that are tractable, realistic, and make good testable predictions about human behavior. In this paper, we bring together knowledge and tools from neuroscience, coding theory, and the rational inattention literature in order to create models of rational memory. In this model, players select costly memory plans which they use to retain information that they expect will be decision relevant in the future. The plans are selected rationally in order to maximize expected payoffs from informed choices net the cost of the memory plan. In this paper we discuss predictions of both the general and specific models of costly memory and compare them to well established data on memory from psychology. The specific cost structures are based on an approximately optimal mechanism for encoding information on a lossy medium. We also propose novel tests of memory features based on the theory. Finally, we provide some simple economic applications where our model explains commonly observed behaviors.
Experimental Tests of Rational Inattention (with Mark Dean)
We use laboratory experiments to test models of ‘rational inattention,’ in which people acquire information to maximize utility from subsequent choices net of information costs. We show that subjects adjust their attention in response to changes in incentives a manner which is broadly in line with the rational inattention model but which violates models such as random utility in which attention is fixed. However, our results are not consistent with information costs based on Shannon entropy, as is often assumed in applied work. We find more support for a class of ‘posterior separable’ cost functions which generalize the Shannon model.