Working Paper: NBER ID: w10216
Authors: 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.
Keywords: Absentmindedness; Consumer Behavior; Lifecycle Model; Budgeting; Precautionary Spending
JEL Codes: D9; E2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absentmindedness (D91) | increased consumption (E21) |
| monitoring behaviors (E71) | less uncertainty about past spending (D89) |
| increased attention (D91) | reduced spending (H56) |
| fluctuations in attention (E32) | changes in spending (D12) |
| absentmindedness (D91) | precautionary spending (H76) |