Abstract

A number of theoretical research papers in micro- as well as macroeconomics model and analyze attention 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, discretionary spending, income, balances, and credit limits. We argue that our findings cannot be explained by rational theories of inattention, i.e., mechanical information costs and benefits. Instead, our findings appear to be more consistent with information- or belief-dependent utility models generating Ostrich effects and anticipatory utility. We find that individuals are considerably more likely to log in because they get paid. Beyond looking at the causal effect of income on attention, we examine how attention depends on individual spending, balances, and credit limits within individuals' own histories. We document that attention is decreasing in spending and overdrafts and increasing in cash holdings, savings, and liquidity. Moreover, attention jumps discretely when balances change from negative to positive. Finally, we show that some of our findings can be explained in a recent influential model of belief-dependent utility developed by Koszegi and Rabin (2009).

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Citation

Olafsson, Arna and Michaela Pagel. "The Ostrich in Us: Selective Attention to Financial Accounts, Income, Spending, and Liquidity." Columbia Business School, December 23, 2017.

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