Choice simplification: a theory of mental budgeting and naive diversification

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985998%3A_____%2F20%3A00524559" target="_blank" >RIV/67985998:_____/20:00524559 - isvavai.cz</a>

Alternative codes found

RIV/00216208:11640/20:00540199

Result on the web

<a href="https://doi.org/10.1093/qje/qjz043" target="_blank" >https://doi.org/10.1093/qje/qjz043</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1093/qje/qjz043" target="_blank" >10.1093/qje/qjz043</a>

Result language

angličtina

Original language name

Choice simplification: a theory of mental budgeting and naive diversification

Original language description

We develop a theory of how an agent makes basic multiproduct consumption decisions in the presence of taste, consumption opportunity, and price shocks that are costly to attend to. We establish that the agent often simplifies her choices by restricting attention to a few important considerations, which depend on the decision at hand and affect her consumption patterns in specific ways. If the agent’s problem is to choose the consumption levels of many goods with different degrees of substitutability, then she may create mental budgets for more substitutable products (e.g., entertainment). In some situations, it is optimal to specify budgets in terms of consumption quantities, but when most products have an abundance of substitutes, specifying budgets in terms of nominal spending tends to be optimal. If the goods are complements, in contrast, then the agent may—consistent with naive diversification—choose a fixed, unconsidered mix of products. And if the agent’s problem is to choose one of multiple products to fulfill a given consumption need (e.g., for gasoline or a bed), then it is often optimal for her to allocate a fixed sum for the need.

Czech name

—

Czech description

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Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

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OECD FORD branch

50201 - Economic Theory

Project

—

Continuities

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Publication year

2020

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

Quarterly Journal of Economics

ISSN

0033-5533

e-ISSN

—

Volume of the periodical

135

Issue of the periodical within the volume

2

Country of publishing house

US - UNITED STATES

Number of pages

55

Pages from-to

1153-1207

UT code for WoS article

000544015700010

EID of the result in the Scopus database

2-s2.0-85085750571