Search Results
Working Paper
Marriage Market Sorting in the U.S.
We examine shifts in the U.S. marriage market, assessing how online dating, demographic changes, and evolving societal norms influence mate choice and broader sorting trends. Using a targeted search model, we analyze mate selection based on factors such as education, age, race, income, and skill. Intriguingly, despite the rise of online dating, preferences, mate choice, and overall sorting patterns showed negligible change from 2008 to 2021. However, a longer historical view from 1960 to 2020 reveals a trend toward preferences for similarity, particularly concerning income, education, and ...
Working Paper
Targeted Search in Matching Markets
We propose a parsimonious matching model where a person's choice of whom to meet endogenizes the degree of randomness in matching. The analysis highlights the interaction between a productive motive, driven by the surplus attainable in a match, and a strategic motive, driven by reciprocity of interest of potential matches. We find that the interaction between these two motives differs with preferences?vertical versus horizontal?and that this interaction implies that preferences recovered using our model can look markedly different from those recovered using a model where the degree of ...
Working Paper
The rigidity of choice: Lifecycle savings with information-processing limits
This paper studies the implications of information-processing limits on the consumption and savings behavior of households through time. It presents a dynamic model in which consumers rationally choose the size and scope of the information they want to process concerning their financial possibilities, constrained by a Shannon channel. The model predicts that people with higher degrees of risk aversion rationally choose more information. This happens for precautionary reasons since, with finite processing rate, risk averse consumers prefer to be well informed about their financial ...
Working Paper
Rationally inattentive macroeconomic wedges
This paper argues that the solution to a dynamic optimization problem of consumption and labor under finite information-processing capacity can simultaneously explain the intertemporal and intratemporal labor wedges. It presents a partial equilibrium model, where a representative risk adverse consumer chooses information about wealth with limited attention. The paper compares ex-post realizations of models with finite and infinite capacity. The model produces macroeconomic wedges and measures of elasticity consistent with the literature. These findings suggest that a consumption-labor model ...
Calibrating central bank inflation messages is key to policy success
A well-crafted message about the current and future state of the economy can influence the private sector’s expectations and guide behavior to ensure that the economy remains strong and prices stable even amid threatening supply-and-demand shocks.
Marrying for Money Ends Up Reducing Income Inequality
The marriage market constitutes a way to ameliorate income inequality in the U.S. and to create bridges across the income ladder.
Working Paper
A theory of targeted search
We present a theory of targeted search, where people with a finite information processing capacity search for a match. Our theory explicitly accounts for both the quantity and the quality of matches. It delivers a unique equilibrium that resides in between the random matching and the directed search outcomes. The equilibrium that emerges from this middle ground is inefficient relative to the constrained Pareto allocation. Our theory encompasses the outcomes of the random matching and the directed search literature as limiting cases.
Journal Article
Cost of decisionmaking influences individual selections
Market prices are often driven by choices later viewed as mistakes. Waves of optimism or pessimism sometimes dramatically move prices; a burst bubble of euphoria can bring significant macroeconomic consequences. ; A sudden change of sentiment may occur when a large number of stock market professionals consistently err by holding on to stocks for too long when they should sell, or by selling equities too quickly when they should be holding on to them. Yet, these individuals are specialists with every incentive to evaluate stocks correctly. ; Behavioral experiments show that in laboratory ...
Journal Article
Central bank communication must overcome the public’s limited attention span
It is critical that central bankers have the ability to communicate their monetary policy goals and intentions involving employment and price stability to the public. The task is complicated in an economy that includes many firms and households in an era of information overload.
Working Paper
Rationally Inattentive Consumer: An Experiment
This paper presents a laboratory experiment that directly tests the theoretical predictions of consumption choices under rational inattention. Subjects are asked to select consumption when income is random. They can optimally decide to reduce uncertainty about income by acquiring signals about it. The informativeness of the signals directly relates to the cognitive effort required to process the information. We find that subjects? behavior is largely in line with the predictions of the theory: 1) Subjects optimally make stochastic consumption choices; 2) They respond to incentives and changes ...