Lack of preparation for rare events

• 成果类型: Article
• 署名作者: Mackowiak, Bartosz; Wiederholt, Mirko
• 署名单位: European Central Bank; Goethe University Frankfurt
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2018.07.007
• 发表日期: 2018
• 页码: 35-47
• 关键词: Rare events; disasters; rational inattention; EFFICIENCY

摘要

A new view of crises is proposed: A rare event occurs, consciously unprepared agents take bad actions, and catastrophic consequences follow. We model agents who prepare to act in different contingencies. They can process only a finite amount of information and thus cannot prepare perfectly for all contingencies. In equilibrium, agents equate the probability-weighted expected loss due to suboptimal action across contingencies, implying that the expected loss in a rare event is orders of magnitude larger than in normal times. Limited liability causes even less preparation for rare events and creates inefficiencies. (C) 2018 Elsevier B.V. All rights reserved.