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Understanding the heterogeneity of savings and asset allocation: A behavioral-economics perspective

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Listed author(s):
  • Binswanger, Johannes

Abstract

Why do saving rates and the proportion of savings invested in stocks substantially increase with income? This paper sheds light on this question from the perspective of a new bounded-rationality life cycle model. It has been shown elsewhere that this model is better than existing ones at predicting how savings and asset allocation choices vary over the life cycle. In this paper it is shown that a very simple version of the same model also allows for a better understanding of the variation in savings and asset allocation choices across income groups.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167-2681(10)00126-5
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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 76 (2010)
Issue (Month): 2 (November)
Pages: 296-317

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Handle: RePEc:eee:jeborg:v:76:y:2010:i:2:p:296-317
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

Keywords: Behavioral economics Bounded rationality Income heterogeneity Life cycle saving Portfolio choice Stock market participation;

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  15. Joao F. Cocco, 2005. "Consumption and Portfolio Choice over the Life Cycle," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 491-533.
  16. Fliessbach, Klaus & Weber, Bernd & Trautner, P. & Dohmen, Thomas J. & Sunde, Uwe & Elger, C. E. & Falk, Armin, 2007. "Social comparison affects reward-related brain activity in the human ventral striatum," Munich Reprints in Economics 20362, University of Munich, Department of Economics.
  17. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942, April.
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  19. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  20. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
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  22. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-643, October.
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Cited by:

  1. Binswanger, J., 2010. "Towards Understanding Life Cycle Savings of Boundedly Rational Agents : A Model with Feasibility Goals (Revision of DP 2008-14)," Discussion Paper 2010-138, Tilburg University, Center for Economic Research.
  2. Binswanger, Johannes, 2012. "Life cycle saving: Insights from the perspective of bounded rationality," European Economic Review, Elsevier, vol. 56(3), pages 605-623.

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