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The Ostrich in Us: Selective Attention to Financial Accounts, Income, Spending, and Liquidity

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  • Olafsson, Arna
  • Pagel, Michaela

Abstract

A number of theoretical research papers in micro as well as macroeconomics model and analyze attention but direct empirical evidence remains scarce. This paper investigates the determinants of attention to financial accounts using panel data from a financial management software provider containing daily logins, discretionary spending, income, balances, and credit limits. We find that individuals are considerably more likely to log in because they get paid utilizing exogenous variation in paydays due to weekends and holidays. Beyond looking at the causal effect of income on attention, we examine how attention depends on individual spending, balances, and credit limits \emph{within} individuals' own histories. We find that attention is decreasing in spending and overdrafts and increasing in cash holdings, savings, and liquidity. Moreover, attention jumps discretely when balances change from negative to positive. We argue that our findings cannot be explained by rational theories of inattention. Instead our findings are consistent with Ostrich effects and anticipatory utility as the main motivation for paying attention to financial accounts and thus provide new tests for information- or belief-dependent utility models. Furthermore, we show that some of our findings can be explained by a recent influential one of those models (Koszegi and Rabin, 2009), which assumes individuals experience utility over news or changes in expectations about consumption.

Suggested Citation

  • Olafsson, Arna & Pagel, Michaela, 2017. "The Ostrich in Us: Selective Attention to Financial Accounts, Income, Spending, and Liquidity," CEPR Discussion Papers 12259, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12259
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    Cited by:

    1. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.

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    Keywords

    personal finance; rational inattention; Selective attention;

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