This paper studies how "rational inattention (RI)" -- a type of information processing constraint proposed by Sims (2003) -- affects the joint dynamics of consumption and income in a permanent income model with general income processes. Specifically, I propose an analytical approach to solve the...

Models of consumer learning and inventory behavior have both proven to be valuable for explaining consumer choice dynamics. In their pure form these models assume consumers solve complex dynamic programming (DP) problems to determine optimal choices. For this reason, these models are best viewed...

Wealth uncertainty may be resolved before consumption in which case consumption is optimal. But if uncertainty remains at the consumption level, after allocative decisions are made, ex post relative consumption is suboptimal. Therefore, ex ante the consumer has to balance attitudes to risk with...

According to the Becker-Murphy model, the consumption of a habitual good follows from forward-looking, maximizing, and time consistent choices on the basis of specific preferences. The ongoing use of such a good builds up a stock of consumption capital which, in turn, affects both its present...

This paper provides a dual formulation of the optimal consumption problem with internal multiplicative habit formation. In this problem, the agent derives utility from the ratio of consumption to the internal habit component. Due to this multiplicative specification of the habit model, the...

Behavioral (e.g. consumption) patterns of boundedly rational agents can lead these agents into learning dynamics that appear to be "wasteful" in terms of well-being or welfare. Within settings displaying preference endogeneity, it is however still unclear how to conceptualize well-being. This...

This paper builds a consumer search model where the cost of going back to stores already searched is explicitly taken into account. We show that the optimal search rule under costly recall is very different from the optimal search rule under perfect recall. Under costly recall, the optimal...

This paper builds a consumer search model where the cost of going back to stores already searched is explicitly taken into account. We show that the optimal search rule under costly recall is very different from the optimal search rule under perfect recall. Under costly recall, the optimal...

Recessions often have detrimental effects on both employment and equity returns, forcing individuals to make decisions about how to balance risks to their labor and capital income. In this paper, we study how individuals allocate their limited attention between capital income and labor income...