TY  - JOUR
AU  - Howitt,Peter
AU  - Özak,Ömer
TI  - Adaptive Consumption Behavior
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15427
PY  - 2009
Y2  - October 2009
UR  - http://www.nber.org/papers/w15427
L1  - http://www.nber.org/papers/w15427.pdf
N1  - Author contact info:
Peter Howitt
Department of Economics
Brown University, Box B
Providence, RI  02912
E-Mail: peter_howitt@brown.edu

Ömer Özak
Department of Economics
Southern Methodist University
3300 Dyer Street
Suite 301, Umphrey Lee Center
Box  0496
Dallas, TX 75275-0496
Tel: 214-768-2755
Fax: 214-768-1821
E-Mail: omer@omerozak.com
AB  - This paper proposes and studies a theory of adaptive consumption behavior under income uncertainty and liquidity constraints. We assume that consumption is governed by a linear function of wealth, whose coefficients are revised each period by a procedure, which, although sophisticated, places few informational or computational demands on the consumer. We show that under a variety of settings, our procedure converges quickly to a set of coefficients with low welfare cost relative to a fully optimal nonlinear consumption function.
ER  -