Portfolio Choice with Information-Processing Limits

Altantsetseg Batchuluun, Yulei Luo () and Eric Young

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we examine the joint consumption-portfolio decision of an agent with limited information-processing capacity (rational inattention or RI) in the sense of Sims (2003) within a non-linear-quadratic (non-LQ) setting. Our model predicts that, as processing capacity falls, agents choose to hold less of their savings in the form of risky assets on average; however, they still choose to hold substantial risky assets with some positive probability. Low capacity causes households to act as if they are more risk averse and more willing to substitute consumption intertemporally.

Keywords: Rational Inattention; Optimal Consumption-Saving; Portfolio Choice. (search for similar items in EconPapers)
JEL-codes: C6 C61 E21 G11 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Portfolio Choice with Information-Processing Limits (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:58538

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