Abstract
In their review of investor processing costs, Blankespoor, deHaan, and Marinovic (2020) encourage researchers to consider “rational inattention” as a way to explain stock market underreaction to public information. We formalize their argument and propose alternatives using a set of formal models. To distinguish between the various drivers of underreaction, we encourage future researchers to consider the opportunity cost of being inattentive, the historical evolution of underreaction, and the difference between information-based and return-based underreaction.
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