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Title: Incentive-driven inattention Authors:  Wagner Gaglianone - Central Bank of Brazil (Brazil)
Raffaella Giacomini - UCL (United Kingdom)
Joao Victor Issler - Getulio Vargas Foundation (Brazil) [presenting]
Vasiliki Skreta - UCL (United Kingdom)
Abstract: A dynamic rational inattention model is built where agents have a budget of attention or cognitive resources to devote to updating expectations. Both the amount of attention and the expectations' accuracy are endogenous and linked to the cost and benefit of updating, which can vary across agents and over time. The model captures novel stylized facts from a panel of professional forecasters, the Central Bank of Brazil's Focus Survey, that is the unique among surveys in that agents choose when to update and there is a recurring contest that ranks agents based on their accuracy. We find that the incentives linked to the contest are the primary drivers of updates and accuracy gains. We structurally estimate the model to uncover the deep parameters characterizing the cost-benefit distribution across agents and how this changes around the contest. The model fits the data well and the estimates allow us to perform counter factual exercises to understand the value of the contest and to investigate alternative survey designs.