Learning and Visceral Temptation in Dynamic Savings Experiments
Alexander L. Brown
Texas A&M University - Department of Economics
Zhikang Eric Chua
Singapore Public Service Commission (PSC)
California Institute of Technology - Division of the Humanities and Social Sciences
August 20, 2008
Quarterly Journal of Economics, 124(1): 197-231, February 2009
This paper tests two explanations for apparent undersaving in lifecycle models: Bounded rationality; and a preference for immediacy. Each was addressed in a separate experimental study. In first study, subjects saved too little initially - providing evidence for bounded rationality - but learned to save optimally within four repeated lifecycles. In the second study, thirsty subjects that 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 savings (with an estimated [beta]=0.6-0.7).
Number of Pages in PDF File: 49
Keywords: behavioral economics, dynamic optimization, experimental economics, hyperbolic discounting, lifecycle savings, social learning
JEL Classification: C61, C91, D83, D91Accepted Paper Series
Date posted: October 8, 2008 ; Last revised: August 9, 2012
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