Rational Inattention in Hiring Decisions

Acharya, Sushant; Wee, Shu Lin

doi:10.1257/mac.20180390

Cited by 22 publications

(19 citation statements)

References 30 publications

(37 reference statements)

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“…Other papers in the literature develop theoretical frameworks where attention varies at business cycle frequencies and use simplifying assumptions to keep the problem tractable. See for example Acharya and Wee (2020) or Macaulay (2019).…”

Section: Discussionmentioning

confidence: 99%

Quantifying Qualitative Survey Data: New Insights on the (Ir)Rationality of Firms' Forecasts

2020

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Using a novel dataset that contains qualitative firm survey data on sales forecasts as well as balance-sheet data on realized sales, we document that only major forecast errors are predictable and display autocorrelation. This result is a particular violation of the Full Information Rational Expectations hypothesis that requires explanation. In contrast, minor forecast errors are neither predictable nor autocorrelated. To arrive at this result, we develop a novel methodology to quantify qualitative survey data on firm forecasts. It is generally applicable when quantitative information, e.g. from balance sheets, is available on the realization of the forecasted variable. Finally, we provide a model of rational inattention that explains our empirical results. Firms optimally limit their degree of attention to information when operating in market environments where information processing is more costly. This results in major forecast errors that are predictable and autocorrelated.

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Section: Discussionmentioning

confidence: 99%

Quantifying Qualitative Survey Data: New Insights on the (Ir)Rationality of Firms' Forecasts

2020

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“…This paper develops one such application, using the discrete choice framework of Matějka and McKay (2015) to embed rational inattention to savings product choices into a New Keynesian model. This discrete choice framework has previously been applied to importing (Dasgupta and Mondria, 2018) and hiring decisions (Acharya and Wee, 2020). This is the first paper to use it to model saving choices 12 .…”

Section: Introductionmentioning

confidence: 99%

The attention trap: Rational inattention, inequality, and fiscal policy

Macaulay

2021

European Economic Review

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I show that if it is costly for households to process information about asset returns, a model with ex-ante identical households features persistent inequality. The steady state has a two-agent structure, with inequality maintained by a complementarity between attention and wealth: wealthy households have stronger incentives to pay attention to asset choices, and so earn higher returns than asset-poor households.Fiscal expansions are less powerful in this model than in a standard model with heterogeneous discount factors, because when an expansion causes poor households to start saving, they also increase their attention. They therefore earn higher interest rates, and so save even more, smoothing the windfall from the policy over a longer time period. I provide evidence for this increase in attention using crossstate variation in uncertainty about savings interest rates in the aftermath of the 2017 Tax Cuts and Jobs Act in the US. The effects of fiscal policy therefore depend not just on the existence of inequality, but also on the cause of that inequality.

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“…Recent papers by Davis et al (2012), Acharya and Wee (2020) and Gavazza et al (2018) highlight the extent to which firms actively try to fill their positions -an activity defined as "recruiting intensity" -can affect labor market flows over the business cycle. Acharya and Wee (2020) show that with rationally inattentive firms, recruiting intensity declines in a recession precisely because firms reject more often when firms are unable to acquire accurate information about the worker, raising the potential of large losses from the hiring of an unsuitable worker. Gavazza et al (2018) argue that the decline in recruiting intensity in a recession is due to general equilibrium effects where increased slack in the labor market allows firms to exert less effort to fill a position.…”

Section: Introductionmentioning

confidence: 99%

Job Applications and Labor Market Flows

Birinci

See

Wee

2020

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Unemployment inflows have declined sharply since the 1980s while unemployment outflows have remained mostly steady despite a rise in workers' applications over time. Using a random search model of multiple applications with costly information, we show how rising applications incentivize more firms to acquire information, improving the realized distribution of match qualities. Higher concentrations of high productivity matches reduce the incidence of endogenous separations, causing unemployment inflow rates to fall. Quantitatively, our model replicates the relative change in inflow and outflow rates as well as the decline in acceptance rates, job offers and the rise in reservation wages.

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Rational Inattention in Hiring Decisions

Cited by 22 publications

References 30 publications

Quantifying Qualitative Survey Data: New Insights on the (Ir)Rationality of Firms' Forecasts

Quantifying Qualitative Survey Data: New Insights on the (Ir)Rationality of Firms' Forecasts

The attention trap: Rational inattention, inequality, and fiscal policy

Job Applications and Labor Market Flows

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