Rational inattention theory is economic theory that recognizes that people have finite information-processing capacity …, in the sense of Shannon and engineering information theory. This approach is still in the early stages of development … macroeconomics and finance. In this chapter we introduce the basic ideas of information theory, show how it can be introduced …

and signals are bounded by a hard constraint, while, in the other, it appears as an additive term in the decision maker …, their solutions differ in certain aspects. In particular, movements in the decision maker's prior belief and utility …

simple cases, tests confirm that subjects adjust their attention in response to incentives as the theory dictates …

simple cases, tests confirm that subjects adjust their attention in response to incentives as the theory dictates …

against its cost, and make their final product choices based on imperfect information. We model this decision using the …