Asymmetric Attention

Alexandre N. Kohlhas, Ansgar Walther

Research output: Contribution to journalJournal articleResearchpeer-review


We document that the expectations of households, firms, and professional forecasters in standard surveys simultaneously extrapolate from recent events and underreact to new information. Existing models of expectation formation, whether behavioral or rational, cannot account for these observations. We develop a rational theory of extrapolation based on limited attention, which is consistent with this evidence. In particular, we show that limited, asymmetric attention to procyclical variables can explain the coexistence of extrapolation and underreactions. We illustrate these mechanisms in a microfounded macroeconomic model, which generates expectations consistent with the survey data, and show that asymmetric attention increases business cycle fluctuations.
Original languageEnglish
JournalAmerican Economic Review
Issue number9
Pages (from-to)2879-2925
Number of pages47
Publication statusPublished - Sept 2021
Externally publishedYes

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