This paper argues that constraining people to choose consumption and labor under finite Shannon capacity produces results in line with U.S. business cycle data. My model has a simple partial equilibrium setting in which risk averse consumers keep high labor supply and low consumption profile at...

This paper argues that the solution to a dynamic optimization problem of consumption and labor under finite information-processing capacity can simultaneously explain the intertemporal and intratemporal labor wedges. It presents a partial equilibrium model, where a representative risk adverse...

This paper studies the implications of information-processing limits on the consumption and savings behavior of households through time. It presents a dynamic model in which consumers rationally choose the size and scope of the information they want to process concerning their financial...