Estimating Behavioral Inattention

Jonathan Benchimol, Lahcen Bounader () and Mario Dotta ()
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Lahcen Bounader: World Bank
Mario Dotta: Sao Paulo School of Business Administration, Getulio Vargas Foundation

No 2025.8, Working Papers from International Network for Economic Research - INFER

Abstract: Bounded rationality and limited attention significantly influence expectation formation and macroeconomic dynamics, yet empirical quantification of these behavioral phenomena remains challenging. This paper provides the first cross-country estimation of both micro- and macro-level attention parameters using a structurally identified behavioral New Keynesian model. Employing Bayesian techniques on harmonized data from 22 OECD countries (1996-2019) and ensuring robust parameter identification, we document substantial heterogeneity in behavioral inattention across countries. Our cognitive discounting estimates range from 0.76 to 0.98, with higher values indicating greater attention. We establish three key empirical regularities: (1) attention parameters are positively associated with macroeconomic volatility, supporting rational inattention theory; (2) surprise movements in key macroeconomic variables and online information-seeking behavior significantly influence attention allocation; and (3) institutional quality, particularly government effectiveness, is correlated with attention levels. These findings reveal that attention is both a behavioral and a structural phenomenon, responding to institutional factors and economic conditions. Our results provide an empirical foundation for calibrating country-specific models and yield important implications for the design and transmission of monetary policy under bounded rationality, showing that policy effectiveness may systematically vary with the macroeconomic environment.

Keywords: Cognitive discounting; myopia; attention; Bayesian estimation; behavioral macroeconomics (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
Pages: 55 pages
Date: 2025
New Economics Papers: this item is included in nep-cbe
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Working Paper: Estimating Behavioral Inattention (2025)
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