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Income groups and long term investment

Author

Listed:
  • Burak Can

    (Maastricht University)

  • Orhan Erdem

    (Borsa Istanbul)

Abstract

Laibson (1997) suggests the present bias problem as one of the driving forces of excessive borrowing. Shefrin and Thaler (1988) suggest that self-control underlies national borrowing/savings rate. We conduct a survey with 65 people between the ages of 21 and 56 to check for present bias as well as self-control problems among individuals in Turkey using a quasi-hyperbolic discounting model. Our findings show that different income groups have similar discount factors, i.e., impatience levels, but very different degrees of dynamic inconsistencies, i.e. present bias levels. In particular, 32.2% of low-income individuals exhibit present bias whereas this is down to 5.9% for high-income individuals. This result does not depend on a particular assumption of a utility function. Using the parameters we elicit through the surveys, policymakers can design appropriate commitment devices for time-inconsistent individuals to ensure a sustainable level of aggregate saving and financial investment.

Suggested Citation

  • Burak Can & Orhan Erdem, 2013. "Income groups and long term investment," Economics Bulletin, AccessEcon, vol. 33(4), pages 3014-3022.
    • Handle: RePEc:ebl:ecbull:eb-13-00636
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    References listed on IDEAS

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    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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