Howitt, Peter. <br/><br/>
Adaptive Consumption Behavior / 
Peter Howitt, Ömer Özak. 
 - Cambridge, Mass.  National Bureau of Economic Research  2009. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w15427 .
 - Working Paper Series (National Bureau of Economic Research)  no. w15427. .
<br/><br/> October 2009. 
<br/><br/> This paper proposes and studies a theory of adaptive consumption behavior under income uncertainty and liquidity constraints. We assume that consumption is governed by a linear function of wealth, whose coefficients are revised each period by a procedure, which, although sophisticated, places few informational or computational demands on the consumer. We show that under a variety of settings, our procedure converges quickly to a set of coefficients with low welfare cost relative to a fully optimal nonlinear consumption function. 
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