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The Absent-Minded Consumer

Author

Listed:
  • 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.

Suggested Citation

  • John Ameriks & Andrew Caplin & John Leahy, 2004. "The Absent-Minded Consumer," NBER Working Papers 10216, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:10216
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    References listed on IDEAS

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    Cited by:

    1. Daniel Levy & Dongwon Lee & Haipeng (Allan) Chen & Robert J. Kauffman & Mark Bergen, 2011. "Price Points and Price Rigidity," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1417-1431, November.
    2. Daniel Levy & Haipeng (Allan) Chen & Sourav Ray & Mark Bergen, 2004. "Asymmetric Price Adjustment in the Small: An Implication of Rational Inattention," Working Papers 2004-08, Bar-Ilan University, Department of Economics.
    3. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
    4. Ni, Shawn & Seol, Youn, 2014. "New evidence on excess sensitivity of household consumption," Journal of Monetary Economics, Elsevier, vol. 63(C), pages 80-94.
    5. Lola Hernandez & Nicole Jonker & Anneke Kosse, 2017. "Cash versus Debit Card: The Role of Budget Control," Journal of Consumer Affairs, Wiley Blackwell, vol. 51(1), pages 91-112, March.
    6. Ulf Von Kalckreuth & Tobias Schmidt & Helmut Stix, 2014. "Using Cash to Monitor Liquidity: Implications for Payments, Currency Demand, and Withdrawal Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1753-1786, December.
    7. Ambrocio, Gene, 2020. "Inflationary household uncertainty shocks," Research Discussion Papers 5/2020, Bank of Finland.
    8. John Ameriks & Andrew Caplin & John Leahy & Tom Tyler, 2004. "Measuring Self-Control," NBER Working Papers 10514, National Bureau of Economic Research, Inc.
    9. Huffman, David B. & Barenstein, Matias, 2004. "Riches to Rags Every Month? The Fall in Consumption Expenditures Between Paydays," IZA Discussion Papers 1430, IZA Network @ LISER.
    10. Ehrmann, Michael, 2006. "Rational inattention, inflation developments and perceptions after the euro cash changeover," Working Paper Series 588, European Central Bank.
    11. Sarkar, Asani & Zhang, Lingjia, 2009. "Time varying consumption covariance and dynamics of the equity premium: Evidence from the G7 countries," Journal of Empirical Finance, Elsevier, vol. 16(4), pages 613-631, September.
    12. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
    13. Ehrmann Michael, 2011. "Inflation Developments and Perceptions after the Euro Cash Changeover," German Economic Review, De Gruyter, vol. 12(1), pages 33-58, February.
    14. Bräuer, Konstantin & Hackethal, Andreas & Hanspal, Tobin, 2020. "Consuming dividends," SAFE Working Paper Series 280, Leibniz Institute for Financial Research SAFE.
    15. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
    16. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 205-224, January.
    17. Yamamoto, Yoshihiro & Suzuki, Akihiko & Fuwa, Yasuhiro & Sato, Tomohiro, 2008. "Decision-making in electrical appliance use in the home," Energy Policy, Elsevier, vol. 36(5), pages 1679-1686, May.
    18. Kevin X. D. Huang & Frank Caliendo, 2011. "Rationalizing Multiple Consumption-Saving Puzzles in a Unified Framework," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 6(3), pages 359-388, September.
    19. Kevin X.D. Huang & Frank Caliendo, 2007. "Rationalizing Seven Consumption-Saving Puzzles in a Unified Framework," Vanderbilt University Department of Economics Working Papers 0716, Vanderbilt University Department of Economics.
    20. Shekinah E. Dare & Wilco W. Dijk & Eric Dijk & Lotte F. Dillen & Marcello Gallucci & Olaf Simonse, 2023. "How Executive Functioning and Financial Self-efficacy Predict Subjective Financial Well-Being via Positive Financial Behaviors," Journal of Family and Economic Issues, Springer, vol. 44(2), pages 232-248, June.
    21. Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Papers 2011-03, Bar-Ilan University, Department of Economics.
    22. repec:rim:rimwps:04-07 is not listed on IDEAS
    23. Vincenzo Cestari & Paolo Del Giovane & Clelia Rossi-Arnaud, 2007. "Memory for prices and the euro cash changeover: An analysis for cinema prices in Italy," Temi di discussione (Economic working papers) 619, Bank of Italy, Economic Research and International Relations Area.
    24. Ambrocio, Gene, 2020. "Inflationary household uncertainty shocks," Bank of Finland Research Discussion Papers 5/2020, Bank of Finland.
    25. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2008. "Learning in the Credit Card Market," NBER Working Papers 13822, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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