Our data allow us to compare individuals within their own histories.3 In other words, we consider people with low or high cash holdings, or small or large overdrafts, relative to their average amount of cash holdings and overdrafts. Anecdotal evidence from online media suggests that it is common to be afraid to check bank account balances.įigure 1 Average login by binned checking account balances, including only individuals who have negative and positive checking account balances at some point in time It shows a positive correlation between bank account balances and logins, and a jump when balances go from negative to positive in the raw data. We find that inattention is selective rather than rational, and that information-dependent utility generating ‘ostrich effects’ (avoiding bad news) and anticipatory utility (an increase in current utility from looking forward to future consumption) are of first-order importance for individual attention to financial accounts.įigure 1 illustrates this.
To what extent is inattention not 'rational' but 'selective' – that is, driven by information-dependent utility?2.Can our empirical findings be explained by 'rational' theories of inattention, that is, by direct information costs and benefits?.When and under what conditions do individuals pay attention to their financial accounts?.We also use high-frequency transaction-level data on income, spending, balances, and credit limits. (2014) in studies of retirement portfolios. This method has previously been used by Sicherman et al. We use online account and smartphone app logins to measure individual attention.
(Our work focuses solely on the determinants of paying attention, and not on its consequences, which was recently investigated by Carlin et al. We do this using data from a financial aggregation platform in Iceland that individuals use to check their bank accounts, but not to execute financial transactions. In a recent paper, we present a large-scale empirical study of individual attention to checking, savings, and credit card accounts so we can better understanding the determinants of attention, and inform this theoretical work (Olafsson and Pagel 2018). In particular, we still don't know whether theories of rational inattention or theories of information-dependent utility are more successful in explaining everyday behaviour. There is, however, not much empirical evidence to answer this question. 2015, Van Nieuwerburgh and Veldkamp 2010). Research into information-dependent utility argues that information also has a direct impact on utility that goes beyond information costs and benefits (Caplin and Leahy 2001, Golman and Loewenstein 2015, Kőszegi and Rabin 2009, Ely et al. 2016 for a survey of the research on this topic). Woodford (2009), Reis (2006), Gabaix and Laibson (2002), and Van Nieuwerburgh and Veldkamp (2009) are examples of this.īut people also seek out apparently useless information or avoid useful information (see Golman et al. Rational inattention has been used as an explanatory mechanism in recent theoretical work on asset pricing and macroeconomics. In contrast, theories of rational inattention argue that individuals incur monetary or opportunity (time) costs of information acquisition that they compare with the expected benefits. Standard theories in economics predict that information is always valuable because it helps individuals make better decisions.
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