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 about their fi�nancial...

This paper argues that constraining people to choose consumption and labor under fi�nite Shannon capacity produces results in line with U.S. business cycle data as well as secular movements in consumption and labor supply. The model has a simple partial equilibrium setting in which risk averse...