EconPapers    
Economics at your fingertips  
 

Rationally inattentive consumption choices

Antonella Tutino ()

Review of Economic Dynamics, 2013, vol. 16, issue 3, 421-439

Abstract: This paper analyzes how information-processing limitations affect consumption in a dynamic full-fledged non-linnear quadratic Gaussian (LQG) setting. In the model, risk-averse consumers rationally choose the quantity and quality of information to process about their wealth, while constrained by a Shannon channel. The main contribution of the paper is methodological. It proposes a solution to rational inattention problems in rich theoretical environments. The main prediction of the model is that consumption responses to wealth shocks are asymmetric, with negative shocks producing faster and stronger reaction than positive shocks. The model also predicts that information processing constraints increase persistence and volatility of consumption behavior. (Copyright: Elsevier)

Keywords: Shannon's capacity; consumption; Asymmetric response (search for similar items in EconPapers)
JEL-codes: C61 D81 D91 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35) Track citations by RSS feed

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2012.03.003
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Working Paper: Online Appendix to "Rationally inattentive consumption choices" (2012) Downloads
Software Item: Code files for "Rationally Inattentive Consumption Choices" (2011) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:11-143

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1010/j.red.2012.03.003

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2020-11-23
Handle: RePEc:red:issued:11-143