Dynamic decision making with feasibility goals: A procedural-rationality approach
Abstract This paper proposes a new framework of intertemporal choice: decision making by means of so-called feasibility goals. These refer to the feasibility of certain target levels of consumption associated with specific future benchmark scenarios. The feasibility goals framework takes into account bounded/procedural rationality without stepping outside the realm of an optimization framework. The paper has two aims. First, it provides a general characterization of the feasibility goals framework. Second, it provides a simple life cycle model with feasibility goals to illustrate the applicability of the concept. The life cycle model is promising for better understanding individual portfolio choice.
If you experience problems downloading a file, check if you have the proper application to view it first. 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Todd W Allen & Christopher D Carroll, 2001.
"Individual Learning About Consumption,"
Economics Working Paper Archive
444, The Johns Hopkins University,Department of Economics.
- John Y. Campbell, 2006.
NBER Working Papers
12149, National Bureau of Economic Research, Inc.
- David I. Laibson & Xavier Gabaix, 2000. "A Boundedly Rational Decision Algorithm," American Economic Review, American Economic Association, vol. 90(2), pages 433-438, May.
- James Choi & David Laibson & Brigitte Madrian & Andrew Metrick, 2007.
"Reinforcement Learning and Savings Behavior,"
Yale School of Management Working Papers
amz2657, Yale School of Management, revised 01 Mar 2009.
- Francisco Gomes & Alexander Michaelides, 2005.
"Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence,"
Journal of Finance,
American Finance Association, vol. 60(2), pages 869-904, 04.
- Gomes, Francisco J & Michaelides, Alexander, 2005. "Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence," CEPR Discussion Papers 4853, C.E.P.R. Discussion Papers.
- Alexander Michaelides & Francisco J. Gomes, 2005. "Optimal life cycle asset allocation : understanding the empirical evidence," LSE Research Online Documents on Economics 193, London School of Economics and Political Science, LSE Library.
- Francisco Gomes & Alexander Michaelides, 2003. "Optimal life-cycle asset allocation: understanding the empirical evidence," LSE Research Online Documents on Economics 24900, London School of Economics and Political Science, LSE Library.
- Patrick Bolton & Antoine Faure-Grimaud, 2005.
"Thinking Ahead: The Decision Problem,"
NBER Working Papers
11867, National Bureau of Economic Research, Inc.
- Bowman, David & Minehart, Deborah & Rabin, Matthew, 1999.
"Loss aversion in a consumption-savings model,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 38(2), pages 155-178, February.
- Laibson, David I., 1997.
"Golden Eggs and Hyperbolic Discounting,"
4481499, Harvard University Department of Economics.
- Francisco J. Gomes & Alexander Michaelides, 2003.
"Portfolio choice with internal habit formation : a life-cycle model with uninsurable labor income risk,"
LSE Research Online Documents on Economics
196, London School of Economics and Political Science, LSE Library.
- Francisco Gomes & Alexander Michaelides, 2003. "Portfolio Choice With Internal Habit Formation: A Life-Cycle Model With Uninsurable Labor Income Risk," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 729-766, October.
- Gomes, Francisco J & Michaelides, Alexander, 2003. "Portfolio Choice with Internal Habit Formation: A Life-Cycle Model with Uninsurable Labour Income Risk," CEPR Discussion Papers 3868, C.E.P.R. Discussion Papers.
- Barberis, Nicholas & Thaler, Richard, 2003.
"A survey of behavioral finance,"
Handbook of the Economics of Finance,
in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 18, pages 1053-1128
- 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.
- Valery Polkovnichenko, 2007. "Life-Cycle Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk," Review of Financial Studies, Society for Financial Studies, vol. 20(1), pages 83-124, January.
- David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
- Harald Uhlig & Martin Lettau, 1999. "Rules of Thumb versus Dynamic Programming," American Economic Review, American Economic Association, vol. 89(1), pages 148-174, March.
- Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, vol. 84(2), pages 186-92, May.
- Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 1-55.
- Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:78:y:2011:i:3:p:219-228. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.