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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. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, Elsevier, vol. 81(2), pages 232-251, August.
  2. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  3. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, American Economic Association, vol. 88(4), pages 769-88, September.
  4. Erich Battistin, 2002. "Errors in Survey Reports of Consumption Expenditures," 10th International Conference on Panel Data, Berlin, July 5-6, 2002, International Conferences on Panel Data C4-2, International Conferences on Panel Data.
  5. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  6. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, American Economic Association, vol. 91(4), pages 832-857, September.
  7. John Ameriks & Andrew Caplin & John Leahy, 2002. "Wealth Accumulation and the Propensity to Plan," NBER Working Papers 8920, National Bureau of Economic Research, Inc.
  8. Martin Browning & Thomas F. Crossley & Guglielmo Weber, 2003. "Asking consumption questions in general purpose surveys," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(491), pages F540-F567, November.
  9. John Ameriks & Andrew Caplin & John Leahy, 2002. "Retirement Consumption: Insights from a Survey," NBER Working Papers 8735, National Bureau of Economic Research, Inc.
  10. Piccione, Michele & Rubinstein, Ariel, 1997. "On the Interpretation of Decision Problems with Imperfect Recall," Games and Economic Behavior, Elsevier, Elsevier, vol. 20(1), pages 3-24, July.
  11. Dow, James, 1991. "Search Decisions with Limited Memory," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(1), pages 1-14, January.
  12. Erich Battistin & Raffaele Miniaci & Guglielmo Weber, 2003. "What do we learn from recall consumption data?," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 466, Bank of Italy, Economic Research and International Relations Area.
  13. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers, Economics Department, Princeton University 99f1, Economics Department, Princeton University.
  14. Huck, Steffen & Müller, Wieland, 2000. "Absent-minded drivers in the lab: Testing Gilboa's model," SFB 373 Discussion Papers, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2000,45, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  15. John Ameriks & Andrew Caplin & John Leahy & Tom Tyler, 2004. "Measuring Self-Control," NBER Working Papers 10514, National Bureau of Economic Research, Inc.
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