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Behavioral Workshop - Michaela Pagel

Tue, 05/02/2017 - 11:40am

Michaela Pagel

Columbia University & CEPR

141 Sage Hall

"The Ostrich in Us: Selective Attention to Financial Accounts, Income, Spending, and Liquidity (joint w/Arna Olafasson)"

A number of theoretical research papers across multiple fields in economics model attention as an input into decision making but direct empirical evidence remains scarce. This paper investigates the determinants of attention to financial accounts using panel data from a financial management software provider containing daily logins, income, spending, balances, and credit limits. We first explore whether individuals pay attention in response to the arrival of income payments. Here, we utilize that weekends and holidays generate exogenous variation in regular payment arrival using a fixed-effects approach. We find that individuals are considerably more likely to log in because they get paid, even though the new information associated with regular income payments should be very limited. Moreover, we estimate a comparable marginal propensity to log in using plausibly exogenous income payments. Beyond looking at the causal effect of income on attention, we examine how attention depends on spending and individual financial standing, such as cash holdings, savings, and liquidity. We find that attention is decreasing in individual spending and overdrafts and increasing in cash holdings, savings, and liquidity. Finally, attention jumps discretely when balances change from negative to positive. All of these results are consistent with Ostrich effects and anticipatory utility as the first-order motivation for checking financial accounts. To rationalize our findings, we set up a model assuming individuals experience utility over news, or changes in expectations about consumption, as proposed by Koszegi and Rabin (2009). Because agents dislike bad news more than they like good news, paying attention to financial account is considered unpleasant, especially when remaining cash holdings are low.

Event Categories: Behavioral Economics & BEDR