Rational agents must perform backwards induction by thinking contingently about future states and actions, but failures of backwards induction and contingent reasoning are ubiquitous. How do boundedly-rational agents make decisions when they fail to correctly forecast actions in the future? We...

We assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are not" sufficient to predict future short-term rates movements, as would be the case if the central" tendency was...

The model of rational inattention with Shannon mutual information costs is increasingly ubiquitous. We introduce a new solution method that lays bare the general behavioral properties of this model and liberates development of alternative models. We experimentally test a key behavioral property...