The Ostrich in Us: Selective Attention to Financial Accounts, Income, Spending, and Liquidity

47 Pages Posted: 23 Oct 2017 Last revised: 1 Nov 2017

See all articles by Arna Olafsson

Arna Olafsson

Copenhagen Business School

Michaela Pagel

Columbia University - Columbia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 2017

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 find that individuals are considerably more likely to log in because they get paid utilizing exogenous variation in paydays due to weekends and holidays. 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 find 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. We argue that our findings cannot be explained by rational theories of inattention. Instead our findings are consistent with Ostrich effects and anticipatory utility as the main motivation for paying attention to financial accounts and thus provide new tests for information- or belief-dependent utility models. Furthermore, we show that some of our findings can be explained by a recent influential one of those models (Kőszegi and Rabin, 2009), which assumes individuals experience utility over news or changes in expectations about consumption.

Suggested Citation

Olafsson, Arna and Pagel, Michaela, The Ostrich in Us: Selective Attention to Financial Accounts, Income, Spending, and Liquidity (October 2017). NBER Working Paper No. w23945, Available at SSRN: https://ssrn.com/abstract=3057176

Arna Olafsson (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Michaela Pagel

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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