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Time-inconsistent preferences, consumption, investment and life insurance decisions

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  • Shou Chen
  • Guangbing Li

Abstract

In this paper, we study a consumption, investment and life insurance strategy model in which agent has time-inconsistent preferences. We numerically find that time-inconsistent preferences lead agent to more consumption–wealth ratio and less insurance–wealth ratio, and that time-inconsistent agent purchases life insurance in advance. Moreover, both the consumption–wealth ratio and amount of life insurance purchased for naive agent are less than for sophisticated one, while total available wealth for naive agent is more than for sophisticated one. In particular, total amount of life insurance purchased increases when agent is young, but the situation reverses when she is older.

Suggested Citation

  • Shou Chen & Guangbing Li, 2020. "Time-inconsistent preferences, consumption, investment and life insurance decisions," Applied Economics Letters, Taylor & Francis Journals, vol. 27(5), pages 392-399, March.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:5:p:392-399
    DOI: 10.1080/13504851.2019.1617395
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    Cited by:

    1. Koo, Ja Eun & Lim, Byung Hwa, 2021. "Consumption and life insurance decisions under hyperbolic discounting and taxation," Economic Modelling, Elsevier, vol. 94(C), pages 288-295.
    2. Shungo Sakaki, 2023. "The rationality of adaptive decision-making and the feasibility of optimal growth planning," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-12, December.

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