We present a model where information processing constraints on workers and firms lead to an endogenous matching function. We provide conditions under which the matching process has a unique equilibrium computable in closed-form. The main finding is that equilibrium matching is generally...

We develop a model of matching where participants have finite information processing capacity. The equilibrium of our model covers the middle ground between the equilibria of random matching and the directed search literatures and reproduces them as limiting cases. Our theory of targeted search...

We present a theory of targeted search, where people with a finite information processing capacity search for a match. Our theory explicitly accounts for both the quantity and the quality of matches. It delivers a unique equilibrium that resides in between the random matching and the directed...

We document new evidence on the link between business failures, markups and business cycle asymmetry in the U.S. economy. We study a model where costly information-processing constraints affect exit decisions of heterogeneous firms in the presence of an aggregate demand externality. We show that...

We study the link between business failures, markups and business cycle asymmetry in the U.S. economy with a model of optimal firm exit under rational inattention. We show that the model's predictions of lagged, counter-cyclical and positively skewed markups together with counter-cyclical exit...

Market prices are often driven by choices later viewed as mistakes. Waves of optimism or pessimism sometimes dramatically move prices; a burst bubble of euphoria can bring significant macroeconomic consequences. ; A sudden change of sentiment may occur when a large number of stock market...