Working Paper: NBER ID: w23958
Authors: Marianne Andries; Valentin Haddad
Abstract: The main features of households' attention to savings are rationalized by a model of information aversion, a preference-based fear of receiving flows of news. In line with the empirical evidence, information averse investors observe the value of their portfolios infrequently; inattention is more pronounced for more risk averse investors and in periods of low or volatile stock prices. The model also explains how changes in information frequencies affect risk-taking decisions, as observed in the field and the lab. Further, we find that receiving state-dependent alerts following sharp downturns improves welfare, suggesting a role for financial intermediaries as information managers.
Keywords: Information Aversion; Risk Aversion; Investor Behavior
JEL Codes: E03; E21; G02; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Information Aversion (D80) | Infrequent Portfolio Observation (G11) |
| Disappointment Aversion (D81) | Information Aversion (D80) |
| Infrequent Portfolio Observation (G11) | Suboptimal Risk-Taking (D91) |
| Receiving State-Dependent Alerts (H77) | Improved Investor Welfare (G19) |
| Information Aversion (D80) | Suboptimal Risk-Taking (D91) |