Ziang Li retweetledi
Most people know Chris Sims as a giant of macro, but he also essentially founded the modern economics literature that takes the idea that people have limited attention seriously. This work put real structure on the idea that attention is scarce, and it has shaped a huge body of research across macroeconomics, finance, and behavioral economics, including much of my own work over the past decade.
The standard benchmark in economics is that people process all payoff-relevant information; they attend to all features of the information environment and make decisions based on the relevant payoffs. Behavioral economists such as Herb Simon challenged this view with the idea of bounded rationality, but without a specific account on what limited attention would look like.
Chris's paper on *rational* inattention changed all that by putting real structure on the problem. It was a pretty simple idea: People can't pay attention to everything, so they pay attention to features where neglect would be more costly. It turns out this very simple assumption generates profound implications for everything from finance and monetary economics, to health and insurance decisions.
Behavioral economists (myself included) have followed this work by proposing models where attention is limited but not allocated rationally, e.g., salience-driven attention. When I gave a talk at Princeton two years ago on how salience-driven attention can lead to over/underreaction to information, Chris was in the front row asking questions and making comments that helped the paper tremendously.
He will be missed.
Jon Hartley@Jon_Hartley_
9/ Sims was also early to behavioral macroeconomics; see "Implications of Rational Inattention" (JME, 2003) — one of his most cited and creative contributions. Sims modeled agents as having limited information-processing capacity, not just limited information. This spawned an entire literature on how attention constraints shape macroeconomic dynamics. Basic intuition: people can't process everything happening in the economy; agents optimize how to allocate their attention & this has profound implications for price-setting, consumption, and why monetary policy works through expectations in subtle ways
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