Recent research in macroeconomics has sought to develop a tractable form of heterogeneity in attempting to model sluggishness of response of the economy consistent with data. Sims (2003) argued that limited information processing was a promising avenue for understanding pervasive stickiness....

This paper develops a decision-theoretic approach to policy analysis. We argue that policy evaluation should be conducted on the basis of two factors: the policymaker's preferences, and the conditional distribution of the outcomes of interest given a policy and available information. From this...