Risk Exposure and Attention to the Macroeconomy
A basic premise of models of rational inattention is that people's demand for information depends on the expected benefits of getting informed. We test this premise using an experiment with a representative sample of the US population. In the experiment we examine how people's beliefs about their personal exposure to macroeconomic risk during recessions causally affect their demand for macroeconomic forecasts about the likelihood of a recession. Households who learn that they are more strongly exposed to unemployment risk during recessions increase their demand for macroeconomic forecasts about the likelihood of a recession, consistent with the predictions of rational inattention models. Our evidence highlights an important role for endogenous information acquisition in response to expected benefits of receiving the information in the formation of households' macroeconomic expectations.