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Learning and Visceral Temptation in Dynamic Savings Experiments

  • Alexander L. Brown
  • Colin F. Camerer
  • Zhikang Eric Chua

This paper tests two explanations for apparent undersaving in life cycle models: bounded rationality and a preference for immediacy. Each was addressed in a separate experimental study. In the first study, subjects saved too little initially—providing evidence for bounded rationality—but learned to save optimally within four repeated life cycles. In the second study, thirsty subjects who consume beverage sips immediately, rather than with a delay, show greater relative overspending, consistent with quasi-hyperbolic discounting models. The parameter estimates of overspending obtained from the second study, but not the first, are in range of several empirical studies of saving (with an estimated β = 0.6–0.7).

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 321307000000000048.

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Date of creation: 14 May 2006
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Handle: RePEc:cla:levrem:321307000000000048
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