Recent evidence suggests that investors are inattentive to their portfolios and hire expensive portfolio managers. This paper develops a life‐cycle portfolio‐choice model in which the investor experiences loss‐averse utility over news and can ignore his portfolio. In such a model, the investor prefers to ignore and not rebalance his portfolio most of the time because he dislikes bad news more than he likes good news such that expected news causes a first‐order decrease in utility. Consequently, the investor has a first‐order willingness to pay a portfolio manager who rebalances actively on his behalf. Moreover, the investor can diversify over time and his consumption aligns with predictions of mental accounting. I structurally estimate the preference parameters by matching stock shares and stock‐market non‐participation over the life cycle. My parameter estimates are in line with the literature, generate reasonable intervals of inattention, and simultaneously explain consumption and wealth accumulation over the life cycle. Here, it matters that news utility preserves first‐order risk aversion even in the presence of stochastic labor income, which also causes stock shares to rise in wealth.

This article shows that contemporaneous and lagged air pollution negatively affects the likelihood of German individual investors to log in and trade in their brokerage accounts, using intraday data and controlling for investor-, weather-, traffic-, and market-specific factors. A 1 SD increase in air pollution leads to a 1.3 percent reduction in the probability of logging in, which is larger than the response to a 1 SD increase in sunshine. We argue that changes in air pollution affect productivity in cognitively demanding tasks, such as trading. Our results are robust to macroeconomic productivity shocks, nonlinearities, or measurement error.

We use a very accurate panel of all individual spending, income, balances, and credit limits from a personal finance software to document spending responses to the arrival of both regular and irregular income. These payday responses are robust and homogeneous for all income and spending categories throughout the income distribution. Moreover, we find that few people hold little or no liquidity. We then analyze whether people hold liquidity cushions to cope with future liquidity constraints. However, we find that peoples’ responses are consistent with standard models without illiquid savings, in which neither present nor future liquidity constraints are frequently binding. Received May 31, 2016; editorial decision September 30, 2017 by Editor Itay Goldstein.

We analyze how individuals reinvest realized capital gains and losses exploiting plausibly exogenous sales due to mutual fund liquidations. Individuals reinvest 83% if a forced sale results in a gain relative to the initial investment; but reinvest only 40% in the event of a loss. This difference is statistically significant for more than six months and arises because many individuals forced to realize a loss choose not to reinvest anything and some even exit the stock market altogether. Individuals treat realized losses differently from paper losses and are discouraged from investing more and participating in the stock market.

We exploit the release of a mobile application for a financial aggregation platform to analyze how technology adoption changes consumer financial decision making. The app reduced the cost of accessing personal financial information, and we find that this led to a drop in non-sufficient fund fees. Because of the manner in which these fees are incurred, this represents an unambiguous welfare improvement for users of the platform. The leading explanation for this result appears to be mistake avoidance due to easier access to information.

Utilizing transaction-level financial data, we explore how household consumption responded to the onset of the COVID-19 pandemic. As case numbers grew and cities and states enacted shelter-in-place orders, Americans began to radically alter their typical spending across a number of major categories. In the first half of March 2020, individuals increased total spending by over 40% across a wide range of categories. This was followed by a decrease in overall spending of 25%–30% during the second half of March coinciding with the disease spreading, with only food delivery and grocery spending as major exceptions to the decline. Spending responded most strongly in states with active shelter-in-place orders, though individuals in all states had sizable responses. We find few differences across individuals with differing political beliefs, but households with children or low levels of liquidity saw the largest declines in spending during the latter part of March.

The 2020 CARES Act directed large cash payments to households. We analyze households’ spending responses using data from a Fintech nonprofit, exploring heterogeneity by income, recent income declines, and liquidity as well as linked survey responses about economic expectations. Households respond rapidly to payments, with spending increasing by about $0.14 per dollar during the first week and plateauing around 0.25–0.30 over 3 months. In contrast to previous stimulus programs, we see little response of durables spending. Households with lower incomes, greater income declines, and less liquidity display stronger responses whereas households that expect employment losses and benefit cuts display weaker responses.