This paper investigates how incomplete information impacts the response of prices to nominal shocks. Our baseline model is a variant of the Calvo model in which firms observe the underlying nominal shocks with noise. In this mode, the response of prices is pinned down by three parameters: the...

Using data on product-level prices matched to the producing firm's unit labor cost, we reject the hypothesis of a full and immediate pass-through of marginal cost. Since we focus on idiosyncratic variation, this does not fit the predictions of the Maćkowiak and Wiederholt (2009) version of the...

The paper reports an experimental study based on a variant of the popular Chinos game, which is used as a simple but paradigmatic instance of observational learning. There are three players, arranged in sequence, each of whom wins a fixed price if she manages to guess the total number of coins...

Using data on product-level prices matched to the producing firm's unit labor cost, we reject the hyptothesis of a full and immediate pass-through of marginal cost. Since we focus on idiosyncratic variation, this does not fit the predictions of the Maćkowiak and Wiederholt (2009) version of the...

This paper presents a model in which price setting firms decide what to pay attention to, subject to a constraint on information flow. When idiosyncratic conditions are more variable or more important than aggregate conditions, firms pay more attention to idiosyncratic conditions than to...

People reason about uncertainty with deliberately incomplete models, including only the most relevant variables. How do people hampered by different, incomplete views of the world learn from each other?We introduce a model of “model-based inference.” Model-based reasoners partition an...

People reason about uncertainty with deliberately incomplete models, including only the most relevant variables. How do people hampered by different, incomplete views of the world learn from each other? We introduce a model of “model-based inference.” Model-based reasoners partition an...

Using data on product-level prices matched to the producing firm's unit labor cost, we reject the hypothesis of a full and immediate pass-through of marginal cost. Since we focus on idiosyncratic variation, this does not fit the predictions of the Maćkowiak and Wiederholt (2009) version of the...

Consumers are often uninformed, or unsure, about the ambient level of environmental risk. An optimal policy must jointly determine efficient levels of self-protection, information provision, and public risk mitigation efforts. Unfortunately, conventional welfare measures are not amenable to...