from the Dallas Fed
— this post authored by Antonella Tutino
Coping with a seemingly constant stream of breaking news is a particularly notable modern-day challenge. The amount and frequency of information about the economic environment may appear overwhelming, challenging one’s ability to process the implications for personal finances and respond.
The laboratory provides insight into how cognitively taxing it can become for people exposed to changes in the economic landscape to acquire and process information. The laboratory corroborates an important theoretical point: Consumers react asymmetrically to shocks to income, with positive shocks generating a more muted and delayed effect on spending than negative shocks. Also, individuals acknowledge relatively small shocks with greater delay than bigger ones. Small positive events command less attention than small negative ones.
As a starting point to understanding this phenomenon, assume that people have limited attention to devote to news about their environment, though they still want to make rational consumption decisions. Such an assumption translates into the theoretical construct that sees people as rationally inattentive.
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Source
https://www.dallasfed.org/~/media/documents/research/eclett/2018/el1807.pdf
