Xavier Gabaix

Xavier Gabaix is a professor of economics at Harvard University who has made significant contributions to both financial economics and macroeconomics. His research on power laws documented that large price fluctuations in stock markets follow a power law distribution driven by large institutional investors trading large blocks. His "sparse inattention" model of macroeconomics provides a microfounded explanation for why consumers and firms don't perfectly optimize — they simplify their information processing — with implications for monetary policy effectiveness. He has also made contributions to the theory of CEO compensation and city size distributions. His work bridges econophysics, behavioral economics, and formal economic theory. His behavioral inattention framework — formalizing how agents allocate limited attention across decision-relevant variables — offers a tractable microfoundation for the observed sluggishness of inflation expectations and consumption responses to monetary policy shocks that standard rational expectations models cannot match without introducing ad hoc information frictions.