A General Equilibrium Model with Inattentive Consumers

This paper explores the e¤ects of heterogeneity in planning propensity on wealth inequality, asset prices and welfare. I consider a simple model economy populated by "attentive " and "inattentive " agents. Attentive agents plan their consumption, savings, or stock holdings period by period, while inattentive ones plan every other period. In partial equilibrium with \u85xed asset prices, inattentive consumers face more uncertainty and save more for precautionary reasons. In general equilibrium, their savings are positively correlated with bond prices, but inattentive consumers still accumulate more wealth. Moreover, asset prices are much more volatile than in a representative agent model with full attention, because they must induce attentive consumers to voluntarily bear the entire burden of adjusting to aggregate shocks. In a simple two-period portfolio choice model driven by uncertain asset returns, however, infrequent revisions of portfolios can produce the opposite result: inattentive investors accumulate less wealth for reasonable levels of risk aversion