Optimal consumption under uncertainty, liquidity constraints, and bounded rationality

Ömer Özak

No 1204, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: I study how boundedly rational agents can learn the solution to an infinite horizon optimal consumption problem under uncertainty and liquidity constraints. I present conditions for the existence of an optimal linear consumption rule and characterize it. Additionally, I use an empirically plausible theory of learning to generate a class of adaptive learning algorithms that converges to the optimal rule. This provides an adaptive and boundedly rational foundation to neoclassical consumption theory.

Keywords: Adaptive learning models; bounded rationality; dynamic programming; consumption function; behavioral economics; liquidity constraint; Markov process (search for similar items in EconPapers)
JEL-codes: C6 D8 D9 E21 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-dge, nep-evo and nep-upt
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Related works:
Journal Article: Optimal consumption under uncertainty, liquidity constraints, and bounded rationality (2014)
Working Paper: Optimal consumption under uncertainty, liquidity constraints, and bounded rationality (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:smu:ecowpa:1204

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