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The Absentminded Consumer

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Listed:
  • John Leahy
  • Andrew Caplin

Abstract

We develop a life-cycle model that captures "absent-mindedness": the fact that many households have only the sketchiest understanding of their pattern of spending. 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, the model suggests strong analogies between control problems of the sort encountered by our absent-minded consumer and the more familiar problems of self control. We test the model on data collected from a new survey of TIAA-CREF participants

Suggested Citation

  • John Leahy & Andrew Caplin, 2004. "The Absentminded Consumer," 2004 Meeting Papers 784, Society for Economic Dynamics.
    • Handle: RePEc:red:sed004:784
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    References listed on IDEAS

    as
    1. Martin Browning & Thomas F. Crossley & Guglielmo Weber, 2003. "Asking consumption questions in general purpose surveys," Economic Journal, Royal Economic Society, vol. 113(491), pages 540-567, November.
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    12. 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.
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    More about this item

    Keywords

    Consumption; Attention; Life-cycle;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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