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The Absent-Minded Consumer

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  • John Ameriks
  • Andrew Caplin
  • John Leahy

Abstract

We present evidence that many households have only a vague notion of what they are spending on various consumption items. We then develop a life-cycle model that captures this absent-mindedness'. 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, we find patterns of attention in the data that are consistent with those predicted by the model.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10216.

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Date of creation: Jan 2004
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Handle: RePEc:nbr:nberwo:10216

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  1. James Banks & Richard Blundell & Sarah Tanner, 1995. "Is there a retirement-savings puzzle?," IFS Working Papers W95/04, Institute for Fiscal Studies.
  2. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 1997. "What Accounts for the Variation in Retirement Wealth Among U.S. Households?," Working Papers 97035, Stanford University, Department of Economics.
  3. Martin Browning & Thomas F. Crossley & Gugliemo Weber, 2002. "Asking Consumption Questions in General Purpose Surveys," CAM Working Papers 2002-05, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  4. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  5. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  6. Huck, Steffen & Müller, Wieland, 2000. "Absent-minded drivers in the lab: Testing Gilboa's model," SFB 373 Discussion Papers 2000,45, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  7. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
  8. John Ameriks & Andrew Caplin & John Leahy & Tom Tyler, 2004. "Measuring Self-Control," NBER Working Papers 10514, National Bureau of Economic Research, Inc.
  9. Erich Battistin & Raffaele Miniaci & Guglielmo Weber, 2003. "What do we learn from recall consumption data?," Temi di discussione (Economic working papers) 466, Bank of Italy, Economic Research and International Relations Area.
  10. Erich Battistin, 2003. "Errors in survey reports of consumption expenditures," IFS Working Papers W03/07, Institute for Fiscal Studies.
  11. John Ameriks & Andrew Caplin & John Leahy, 2007. "Retirement Consumption: Insights from a Survey," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 265-274, May.
  12. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  13. Rubinstein, Ariel, 1995. "On the Interpretation of Decision Problems with Imperfect Recall," Mathematical Social Sciences, Elsevier, vol. 30(3), pages 324-324, December.
  14. Dow, James, 1991. "Search Decisions with Limited Memory," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 1-14, January.
  15. John Ameriks & Andrew Caplin & John Leahy, 2002. "Wealth Accumulation and the Propensity to Plan," NBER Working Papers 8920, National Bureau of Economic Research, Inc.
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