Reinforcement Learning and Savings Behavior
AbstractWe show that individual investors over-extrapolate from their personal experience when making savings decisions. Investors who experience particularly rewarding outcomes from 401(k) saving-a high average and/or low variance return-increase their 401(k) savings rate more than investors who have less rewarding experiences. This finding is not driven by aggregate time-series shocks, income effects, rational learning about investing skill, investor fixed effects, or time-varying investor-level heterogeneity that is correlated with portfolio allocations to stock, bond, and cash asset classes. We discuss implications for the equity premium puzzle and interventions aimed at improving household financial outcomes. Copyright (c) 2009 the American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 64 (2009)
Issue (Month): 6 (December)
Other versions of this item:
- Laibson, David I. & Choi, James J. & Madrian, Brigitte & Metrick, Andrew, 2009. "Reinforcement Learning and Savings Behavior," Scholarly Articles 4686777, Harvard University Department of Economics.
- James Choi & David Laibson & Brigitte Madrian & Andrew Metrick, 2007. "Reinforcement Learning and Savings Behavior," Yale School of Management Working Papers amz2657, Yale School of Management, revised 01 Mar 2009.
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