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Towards Understanding Life Cycle Saving Of Boundedly Rational Agents: A Model With Feasibility Goals - Replaced by CentER Discussion Paper 2010-138

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  • Binswanger, J.

    (Tilburg University, Center for Economic Research)

Abstract

This paper develops a new life cycle model that aims to describe the savings and asset allocation decisions of boundedly rational agents. The paper’s main theoretical contribution is the provision of a simple, tractable and parsimonious framework within which agents make forward looking decisions in the absence of full contingent planning. Instead, agents pursue two simple so-called feasibility goals. The paper uses this framework to shed light on important empirical patterns of asset allocation that are puzzling from the point of view of existing models.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-14.

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Date of creation: 2008
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Handle: RePEc:dgr:kubcen:200814

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Web page: http://center.uvt.nl

Related research

Keywords: Behavioral economics; bounded rationality; equity shares; feasibility goals; life cycle saving; stock market participation;

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  1. David I. Laibson & Xavier Gabaix, 2000. "A Boundedly Rational Decision Algorithm," American Economic Review, American Economic Association, vol. 90(2), pages 433-438, May.
  2. Gomes, Francisco J & Michaelides, Alexander, 2005. "Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence," CEPR Discussion Papers 4853, C.E.P.R. Discussion Papers.
  3. Bowman, David & Minehart, Deborah & Rabin, Matthew, 1999. "Loss aversion in a consumption-savings model," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 155-178, February.
  4. Luigi Guiso & Tullio Jappelli, 2000. "Household Portfolios in Italy," CSEF Working Papers 43, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  5. Jesus Fernandez-Villaverde & Dirk Krueger, 2002. "Consumption over the Life Cycle: Facts from Consumer Expenditure Survey Data," NBER Working Papers 9382, National Bureau of Economic Research, Inc.
  6. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2004. "Are Americans Saving "Optimally" for Retirement?," NBER Working Papers 10260, National Bureau of Economic Research, Inc.
  7. Binswanger, J., 2008. "A Simple Bounded-Rationality Life Cycle Model," Discussion Paper 2008-13, Tilburg University, Center for Economic Research.
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