The Absentminded Consumer

John Leahy () and Andrew Caplin ()

No 784, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a life-cycle model that captures "absent-mindedness": the fact that many households have only the sketchiest understanding of their pattern of spending. The model generates precautionary spending, whereby absent-minded agents tend to consume more than attentive ones. The model also predicts fluctuations over time in the level of attention, and thereby sheds new light on the sharp reduction in consumption both at retirement, and in cyclical downturns. Finally, the model suggests strong analogies between control problems of the sort encountered by our absent-minded consumer and the more familiar problems of self control. We test the model on data collected from a new survey of TIAA-CREF participants

Keywords: Consumption; Attention; Life-cycle (search for similar items in EconPapers)
JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: 2004
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