Rational memory with decay.

Historically, economic models of memory have neglected a pivotal aspect: decay, the established notion that memories deteriorate over time, resulting in a loss of fidelity. In this paper we show that a framework of rational memory with decay can produce the recency effect and other intuitively appealing memory phenomena. We apply the framework to both finite time and dynamic programming settings, deriving a wide range of results with a focus on comparative statics and asymptotic behaviors. Many of our results can also be applied to multi-dimensional rational inattention settings where individuals have to split their attention across several information sources. [ABSTRACT FROM AUTHOR]