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Attainable Non-optimality or Unattainable Optimality: A New Approach to Stochastic Life Cycle Problems

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  • Pemberton, James
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    Abstract

    When future income is uncertain, the standard model of stochastic life cycle behavior does not provide an operatio nal basis for consumer choice because it is too complex to be solved either analytically or intuitively by the human brain (even if computer-assisted). This paper proposes an alternative model of intertemporal decision-making that takes full account of the future, including future uncertainty, but which is analytically tractable. T he model is applied to some illustrative examples. Copyright 1993 by Royal Economic Society.

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    Bibliographic Info

    Article provided by Royal Economic Society in its journal The Economic Journal.

    Volume (Year): 103 (1993)
    Issue (Month): 416 (January)
    Pages: 1-20

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    Handle: RePEc:ecj:econjl:v:103:y:1993:i:416:p:1-20

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    Cited by:
    1. Ralf Rodepeter & Joachim K. Winter, 2000. "Rules of Thumb in Life-Cycle Savings Models," Econometric Society World Congress 2000 Contributed Papers 1222, Econometric Society.
    2. Insong Jang, 2001. "Forward Looking Behavior And Empirical Household Consumption Function," Bonn Econ Discussion Papers bgse7_2001, University of Bonn, Germany.
    3. Binswanger, Johannes, 2012. "Life cycle saving: Insights from the perspective of bounded rationality," European Economic Review, Elsevier, vol. 56(3), pages 605-623.

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