Tutino, Antonella (2008): The rigidity of choice: lifetime savings under informationprocessing constraints.

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Abstract
This paper studies the implications of informationprocessing limits on the consumption and savings behavior of households through time. It presents a dynamic model in which consumers rationally choose the size and scope of the information they want to process about their fi�nancial possibilities, constrained by a Shannon channel. The model predicts that people with higher degrees of risk aversion rationally choose higher information. This happens for precautionary reasons since, with fi�nite processing rate, risk averse consumers prefer to be well informed about their fi�nancial possibilities before implementing consumption plan. Moreover, numerical results show that consumers with processing capacity constraints have asymmetric responses to shocks, with negative shocks producing more persistent effects than positive ones. This asymmetry results into more savings. I show that the predictions of the model can be effectively used to study the impact of tax reforms on consumers spending. The results are qualitatively consistent with the evidence on tax rebates (2001, 2008).
Item Type:  MPRA Paper 

Original Title:  The rigidity of choice: lifetime savings under informationprocessing constraints 
Language:  English 
Keywords:  Consumption, Rational Inattention, Dynamic programming 
Subjects:  D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D81  Criteria for DecisionMaking under Risk and Uncertainty D  Microeconomics > D9  Intertemporal Choice and Growth > D91  Intertemporal Consumer Choice; Life Cycle Models and Saving D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D83  Search; Learning; Information and Knowledge; Communication; Belief 
Item ID:  16744 
Depositing User:  Antonella Tutino 
Date Deposited:  11. Aug 2009 15:13 
Last Modified:  13. Feb 2013 11:48 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/16744 