 The Sensitivity of Tests of the Intertemporal Allocation of Consumption to Near-Rational AlternativesNo 2730, NBER Working Papers from National Bureau of Economic Research, Inc Abstract: This paper presents calculations of the utility cost to consumers of following alternative decision rules in the environments specified by tests of the intertemporal allocation of consumption on aggregate data. The alternatives include excess and inadequate sensitivity to income and interest rate changes and ignoring information. The calculations find that the costs of large deviations from the optimal decision rule--consumption equal to current income, for example--are on the order of l cent to $1 per quarter. They are interpreted to suggest that the theory does not make predictions that are robust to small inaccuracies of modeling, including small costs of transactions and information, and that those small costs can account for rejections of the theory as it is applied to aggregate US data. Date: 1988-10 Published as The American Economic Review, Vol. 79, No. 3, pp. 319-337, (June 1989). Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:2730 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC. |
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