Harnessing Naturally Occurring Data to Measure the Response of Spending to Income

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DateApr 4th, 2016

Author

Shachar Kariv, PhD.,

Dan Silverman, PhD.

Read time 20 minutes

This paper presents a new data infrastructure for measuring economic activity. The infrastructure records transactions and account balances, yielding measurements with scope and accuracy that have little precedent in economics.

The data are drawn from a diverse population that overrepresents males and younger adults but contains large numbers of underrepresented groups. The data infrastructure permits evaluation of a benchmark theory in economics that predicts that individuals should use a combination of cash management, saving, and borrowing to make the timing of income irrelevant for the timing of spending.

As in previous studies and in contrast to the predictions of the theory, there is a response of spending to the arrival of anticipated income. The data also show, however, that this apparent excess sensitivity of spending results largely from the coincident timing of regular income and regular spending. The remaining excess sensitivity is concentrated among individuals with less liquidity.

Harnessing naturally occurring data to measure the response of spending to income

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About author

Shachar Kariv, PhD.

He is also the Benjamin N. Ward Professor of Economics and the recent Chair of the Economics Department at the University of California, Berkeley – recognized as one of the world’s most impactful and influential economics institutions.

Shachar is widely regarded as the top decision theorist and game theorist in the world.

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About author

Dan Silverman, PhD.

He is the Rondthaler Family Professor of Economics at Arizona State University (currently on sabbatical), and a microeconomist whose research blends economic theory and econometrics to study how public and private policies influence decision-making.

His recent work leverages ‘big data’ and novel blends of surveys and experiments to gain insights into the quality of spending and saving choices, especially in the years leading up to and after retirement.