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Lifecycle Consumption Under Different Income Profiles: Experimental Evidence

Author

Listed:
  • John Duffy

    () (Department of Economics, University of California-Irvine)

  • Yue Li

    () (SUNY-Albany)

Abstract

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.

Suggested Citation

  • John Duffy & Yue Li, 2016. "Lifecycle Consumption Under Different Income Profiles: Experimental Evidence," Working Papers 161702, University of California-Irvine, Department of Economics.
  • Handle: RePEc:irv:wpaper:161702
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    References listed on IDEAS

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    More about this item

    Keywords

    Bond markets; Lifecycle model; Consumption and savings; Retirement planning; Behavioral and experimental economics;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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