TY  - JOUR
AU  - Reis,Ricardo
TI  - Inattentive Consumers
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10883
PY  - 2004
Y2  - November 2004
UR  - http://www.nber.org/papers/w10883
L1  - http://www.nber.org/papers/w10883.pdf
N1  - Author contact info:
Ricardo Reis
Department of Economics, MC 3308
Columbia University
420 West 118th Street, Rm. 1022 IAB
New York  NY  10027
Tel: 212-851-4007
Fax: 212-854-8059
E-Mail: rreis@columbia.edu
AB  - This paper studies the consumption decisions of agents who face costs of acquiring, absorbing and processing information. These consumers rationally choose to only sporadically update their information and re-compute their optimal consumption plans. In between updating dates, they remain inattentive. This behavior implies that news disperses slowly throughout the population, so events have a gradual and delayed effect on aggregate consumption. The model predicts that aggregate consumption adjusts slowly to shocks, and is able to explain the excess sensitivity and excess smoothness puzzles. In addition, individual consumption is sensitive to ordinary and unexpected past news, but it is not sensitive to extraordinary or predictable events. The model further predicts that some people rationally choose to not plan, live hand-to-mouth, and save less, while other people sporadically update their plans. The longer are these plans, the more they save. Evidence using U.S. aggregate and microeconomic data generally supports these predictions.
ER  -