Alexander L. Brown (Division of Humanities and Social Sciences, California Institute of Technology) Zhikang Eric Chua (Singapore Public Services Commission) Colin F. Camerer (Division of Humanities and Social Sciences, California Institute of Technology)
Abstract
This paper tests two explanations for apparent undersaving in life cycle models: bounded rationality and a preference for immediacy. Each was addressed in a separate experimental study. In the first study, subjects saved too little initially-providing evidence for bounded rationality-but learned to save optimally within four repeated life cycles. In the second study, thirsty subjects who consume beverage sips immediately, rather than with a delay, show greater relative overspending, consistent with quasi-hyperbolic discounting models. The parameter estimates of overspending obtained from the second study, but not the first, are in range of several empirical studies of saving (with an estimated β = 0.6-0.7). (c) 2009 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..
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Volume (Year): 124 (2009) Issue (Month): 1 (February) Pages: 197-231 Download reference. The following formats are available: HTML
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