Most empirical studies assume only monotonic preferences for households. Behavioral research however provides substantial evidence that preferences for wealth are measured relative to a reference point. In this paper we introduce and solve a two-period consumption and savings model for a loss-averse agent who measures utility from consumption relative to a benchmark level. The solution is given as a parametric decision rule with one unknown parameter that depends on the distribution of the return on saving. We find non-linearity in the fraction of wealth saved, where the specific saving pattern depends on the sign of the real return on savings. The amount of saving is nondecreasing in initial wealth and the riskiness of the return distribution.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)