Optimal actions of an agent facing a Shannon capacity constraint on the translation of an uncertain signal into an action can easily turn out to be discretely distributed, even when the objective function and the initial distribution of uncertainty contain no discrete elements. We show this...

Often, individuals must choose among discrete alternatives with imperfect information about their values, such as selecting a job candidate, a vehicle or a university. Before choosing, they may have an opportunity to study the options, but doing so is costly. This costly information acquisition...

We link two important ideas: attention is scarce and a lack of information about an individual drives discrimination in selection decisions. We model how knowledge of ethnicity influences allocation of attention to available information about an applicant. When only a small share of applicants...

This paper proposes a mechanism leading to rigid pricing as an optimal strategy. It applies a framework of rational inattention to study the pricing strategies of a monopolistic seller facing a consumer with limited information capacity. The consumer needs to process information about prices,...

This paper presents a model of a rationally inattentive seller responding to shocks to unit input cost. The model generates price series imultaneously exhibiting all three of the following features that can be found in the data. 1) Prices change frequently. 2) Responses of prices to aggregate...