Adaptive Consumption Behavior
69 Pages Posted: 21 Oct 2009 Last revised: 26 Feb 2023
Date Written: October 2009
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.
Suggested Citation: Suggested Citation
Howitt, Peter and Özak, Ömer, Adaptive Consumption Behavior (October 2009). NBER Working Paper No. w15427, Available at SSRN: https://ssrn.com/abstract=1492461
Do you have a job opening that you would like to promote on SSRN?
Feedback to SSRN
If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday.