Rational Inattention

Mark Thoma highlights a report  from the Federal Reserve Board in Dallas:

One macroeconomic school of thought—known as rational expectations—assumes that people fully and quickly process all freely available information. By comparison, under rational inattention theory, information is also fully and freely available, but people lack the capability to quickly absorb it all and translate it into decisions. Rational inattention is based on a simple observation: Attention is a scarce resource and, as such, it must be budgeted wisely.[1]

A world with overwhelming amounts of facts and data means prioritizing activities, recognizing individual processing limitations and accepting the consequences when acting, even if all information isn’t fully analyzed. Given a physical constraint on the rate at which people can process information—referred to as Shannon’s channel, after Claude Shannon, a Bell Labs researcher who pioneered information theory in the 1940s—people choose how much attention to devote to different subjects so they can maximize their productivity.

This seemingly abstract concept has a familiar resonance with day-to-day experience. For instance, the maximum amount of information that somebody can download from a computer at any one moment cannot exceed a number—the transmission rate—provided by the manufacturer. Likewise, a person cannot instantaneously respond to a given email. The amount of time it takes to answer email depends on its content and how much information that person wants to process to produce a sensible reply. The brain, which has limits on its processing abilities, is the channel through which an individual directs information, from the original email to the reply.

As Thoma mentions, the theories are interesting, but the mathematics underlying it is difficult.  I would guess so.  Really, this is just a way to try to fit real-life to the theory of rational expectations.  Even with the help of behavioral economics, I don't think you will be able to accurately predict what people are going to do in the future.  I know that my decision-making process is pretty harried, involves quick mistakes and built-in biases, and a whole lot of chance.  If someone observed me for a long time and tried to predict what decision I would reach, I bet they wouldn't be too successful.  Trying to do that for the whole world is pointless, especially when misinformation and propaganda is so prevalent.