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Self-Attribution Bias and Consumption

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  • Zinn, Jesse

Abstract

In this paper I examine the implications of self-attribution bias on consumption and savings decisions. When self-attributive learning replaces rational expectations in a model of intertemporal choice, two departures from the permanent-income hypotheses manifest. One is that consumers tend to under-save early in life. Another is a relatively high degree of covariance between changes in consumption and changes in income. No other factor on its own has been able to explain both of these empirical anomalies that the permanent-income hypothesis has faced.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50314.

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Date of creation: 30 Sep 2013
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Handle: RePEc:pra:mprapa:50314

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Keywords: Cognative Biases; Uncertainty; Consumption; Saving;

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  1. David W. Wilcox, 1987. "Social security benefits, consumption expenditure, and the life cycle hypothesis," Working Paper Series / Economic Activity Section 78, Board of Governors of the Federal Reserve System (U.S.).
  2. George A. Akerlof, 2007. "The Missing Motivation in Macroeconomics," American Economic Review, American Economic Association, vol. 97(1), pages 5-36, March.
  3. John Y. Campbell & N. Gregory Mankiw, 1991. "Permanent Income, Current Income, and Consumption," NBER Working Papers 2436, National Bureau of Economic Research, Inc.
  4. Carroll, Christopher D, 1994. "How Does Future Income Affect Current Consumption?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 111-47, February.
  5. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
  6. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
  7. Shea, John, 1995. "Union Contracts and the Life-Cycle/Permanent-Income Hypothesis," American Economic Review, American Economic Association, vol. 85(1), pages 186-200, March.
  8. Simon Gervais & Terrance Odean, . "Learning To Be Overconfident," Rodney L. White Center for Financial Research Working Papers 05-97, Wharton School Rodney L. White Center for Financial Research.
  9. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  10. Zinn, Jesse, 2013. "Modelling Biased Judgement with Weighted Updating," MPRA Paper 50310, University Library of Munich, Germany.
  11. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  12. Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December.
  13. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
  14. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  15. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  16. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, May.
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