Seminar: Marta Lachowska, Stockholm University and Princeton University

Title: Consumption and Information: An Exploration of Theories of Consumer Behavior Using Daily Data.

Abstract: The availability of high frequency data on expenditures and information provides an opportunity to test models of consumption decisions. This paper studies the joint dynamics of information and consumption using data at a daily frequency. I find that spending reacts sharply to shocks to information, but in contrast to previous research findings, this reaction fades within a very short period of time. Additionally, my data allow me to move beyond representative agent models in studying the response of individuals facing different income stability. Unlike papers using aggregate data, I am able to contrast the reactions of different types of consumers. I find that individuals who face less secure income streams cut back more than those with secure income. I show that this behavior of consumption cannot be adequately explained by canonical consumption theories, such as the permanent income hypothesis model and the buffer stock model. My findings are in line with the predictions of a signal-extraction model, where agents react to noisy signals.