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Hyperbolic Discounting, Wealth Accumulation, and Consumption

Author

Listed:
  • Marios Angeletos
  • David Laibson
  • Andrea Repetto
  • Jeremy Tobacman
  • Stephen Weinberg

Abstract

Laboratory and field studies of time preference find that discount rates are much greater in the short-run than in the long-run. Hyperbolic discount functions capture this property. This paper presents simulations of the savings and asset allocation choices of households with hyperbolic preferences. The behavior of the hyperbolic households is com-pared to the behavior of exponential households. The hyperbolic households hold relatively more illiquid wealth and relatively less liquid wealth. The hyperbolic households borrow much more frequently in the revolving credit market. The hyperbolic households exhibit greater consumption-income comovement and experience a greater drop in consumption around retirement. Moreover, the hyperbolic simulations match observed consumption and balance sheet data much better than the exponential simulations.

Suggested Citation

  • Marios Angeletos & David Laibson & Andrea Repetto & Jeremy Tobacman & Stephen Weinberg, 2000. "Hyperbolic Discounting, Wealth Accumulation, and Consumption," Documentos de Trabajo 90, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:90
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    Cited by:

    1. Andrea Repetto, 2001. "Incentivos al ahorro personal: Lecciones de la economía del comportamiento," Central Banking, Analysis, and Economic Policies Book Series, in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edit (ed.),Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 7, pages 191-240, Central Bank of Chile.
    2. Cristóbal Huneeus, 2001. "Principales motivaciones de los chilenos para ahorrar: Evidencia usando datos subjetivos," Central Banking, Analysis, and Economic Policies Book Series, in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edit (ed.),Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 8, pages 241-262, Central Bank of Chile.
    3. Findley, T. Scott & Caliendo, Frank N., 2015. "Time inconsistency and retirement choice," Economics Letters, Elsevier, vol. 129(C), pages 4-8.
    4. María José Luengo-Prado & Almudena Sevilla-Sanz, 2010. "Consumption, retirement and life-cycle prices: Evidence from Spain," Working Papers 2010-18, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
    5. Sebastian Barnes & Garry Young, 2003. "The rise in US household debt: assessing its causes and sustainability," Bank of England working papers 206, Bank of England.

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