Lifecycle Consumption Plans, Social Learning and External Habits: Experimental Evidence
AbstractWe report results from a laboratory experiment exploring the extent to which individuals can solve a deterministic, intertemporal lifecycle consumption optimization problem. The environment we study has a positive interest rate on savings and no discounting implying that the optimal consumption path should be linearly increasing over time, i.e., agents maximize their lifecycle payoff by smoothing their consumption over time. In addition to studying the individual intertemporal consumption/savings problem, we explore the role played by social information regarding the consumption/savings decisions of other, homogeneously endowed agents as well as the role played by an external habit formation specification for preferences. We find that subjects are generally closest to the conditionally optimal consumption path when they do not have access to social information on the consumption decisions made by other, similarly situated subjects or when social concerns (external habits) are explicitly incorporated into their utility functions.
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Bibliographic InfoPaper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number 513.
Date of creation: Sep 2013
Date of revision: Sep 2013
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-15 (All new papers)
- NEP-CBE-2013-12-15 (Cognitive & Behavioural Economics)
- NEP-EXP-2013-12-15 (Experimental Economics)
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