American Economic Review Vol. 79 No. 3 1989
The Sensitivity of Tests of the Intertemporal Allocation of Consumption to Near-Rational Alternatives
Abstract
Suppose a consumer sets consumption equal to income each period, rather than follow the optimal permanent income decision rule. How much utility does he lose? This paper finds that the answer is typically less than 10-$1 per quarter in environments specified by popular tests on aggregate data, and concludes that the theory does not make predictions in those environments that are robust to small costs of information, transactions, etc.
- Volume
- 79
- Issue
- 3
- Pages
- 319-337
- Sources
- bibtex:phds-export.bib