We developed new theories of the fundamental behaviour of inattentive agents, and then we applied the insights to the study of important issues including the functioning of democracy, discrimination, polarization, and poverty.
First, we have provided a deeper understanding of the concept of mental accounting. We developed a theory of how an agent makes basic multi-product consumption decisions in the presence of taste, consumption-opportunity, and price shocks that are costly to attend to. We established that the agent often simplifies her choices by restricting her attention to a few important considerations, which depend on the decision at hand and affect her consumption patterns in specific ways. If the agent's problem is to choose her consumption levels of many goods with different degrees of substitutability, then she may create mental budgets for product categories that contain more substitutable items (e.g. entertainment and food). In some situations, it is optimal to specify budgets in terms of consumption quantities, but when most products have an abundance of substitutes, specifying budgets in terms of nominal spending tends to be optimal. If the goods are complements, in contrast, then the agent may --- consistent with naive diversification --- choose a fixed, unconsidered mix of products. If the agent's problem is to choose one of multiple products to fulfil a given consumption need (e.g. for gasoline or for a bed), then it is often optimal for her to allocate a fixed sum for the need.
Second, we studied how voters' selective ignorance interacts with policy design by political candidates. Small groups and voters with extreme preferences are more influential than under full information, divisive issues attract the most attention, and public goods are underfunded.
We also studied theoretically and experimentally how flexible information acquisition drives polarization of individuals with the same preferences, but perhaps only slightly different prior beliefs.
Finally, we explored how some economic variables, including prices and portfolio structure, do not change continually, but instead stay fixed for spans of time, then jump to new values. This behavior is usually modeled by the introduction of an explicit adjustment cost. We show that such a pattern can also represent optimal allocation of the attention of agents who have limited capacities to process information. We showed this result analytically in a broad class of cases. In this section, we also studied how quotas can affect the allocation of attention of HR managers.
The results have been presented at more than fifty invited talks at conferences and university seminars, and in national media. The work has been published in top economic journals. Selected papers include:
Kőszegi, Botond, and Filip Matějka. "Choice simplification: A theory of mental budgeting and naive diversification." The Quarterly Journal of Economics 135.2 (2020): 1153-1207.
Jung, Junehyuk, Kim, Jeong Ho (John), Matějka, Filip, and Christopher A. Sims. "Discrete actions in information-constrained decision problems." The Review of Economic Studies, 86.6 (2019): 2643-2667.
Matějka, Filip, and Guido Tabellini. "Electoral competition with rationally inattentive voters." The Journal of the European Economic Association (2020).
