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Lifecycle Consumption Under Different Income Profiles: Experimental Evidence

Listed author(s):
  • John Duffy

    ()

    (Department of Economics, University of California-Irvine)

  • Yue Li

    ()

    (SUNY-Albany)

We report on a series of economic decision-making experiments exploring how individuals make lifecycle consumption and saving plans when they face different income profiles. We find that for every income profile we consider, subjects on average over- consume in the early periods of life and under-consume in later periods of life relative to the conditional optimum and any sudden drop in income reduces their lifetime utility. We conduct a specification search for a model to explain our data and find that a two-type model with one type consuming the conditional optimum and the other type consuming endowments best fits our data.

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File URL: http://www.economics.uci.edu/research/wp/1617/16-17-02.pdf
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Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 161702.

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Length: 61 pages
Date of creation: Oct 2016
Handle: RePEc:irv:wpaper:161702
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Web page: http://www.economics.uci.edu/

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  18. Feltovich, Nick & Ejebu, Ourega-Zoé, 2014. "Do positional goods inhibit saving? Evidence from a life-cycle experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 440-454.
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