We examine the loss in utility for a consumer who ignores any or all of the
following: (1) the multi-period nature of the consumer's portfolio-choice
problem, (2) the empirically documented predictability of asset returns, or
(3) transaction costs. Both the costs of behaving myopically and ignoring
predictability can be substantial, although allowing for intermediate consu
mption reduces these costs. Ignoring realistic transaction costs fixed and
proportional) imposes significant utility costs that range from 0.8% up to
16.9% of wealth. For the scenarios that we consider, the presence of transa
ction costs always increases the utility cost of behaving myopically, but d
ecreases the utility cost of ignoring predictability. (C) 1999 Elsevier Sci
ence S.A. All rights reserved. JEL classification: G11; G12.