Scenario-Based Satisficing in Saving: A Theoretical and Experimental Analysis

36 Pages Posted: 19 Oct 2007 Last revised: 4 Dec 2007

See all articles by Werner Guth

Werner Guth

Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

M. Vittoria Levati

Max Planck Society for the Advancement of the Sciences - Strategic Interaction Group

Matteo Ploner

University of Trento

Date Written: August 27, 2007

Abstract

Contrary to the models of deterministic life cycle saving, we take it for granted that uncertainty of one's future is the essential problem of saving decisions. However, unlike the stochastic life cycle models, we capture this crucial uncertainty by a non-Bayesian scenario-based satisficing approach. Decision makers first form aspirations for a few relevant scenarios, and then search for saving plans satisficing these aspirations. In addition to formally specifying scenario-based satisficing in saving, we explore it experimentally. The results confirm that optimal intertemporal allocations are difficult to derive, and suggest that satisficing allocations can be reached easily when aspirations are incentivized.

Keywords: Intertemporal allocation decisions, Bayesian updating, Satisficing behavior

JEL Classification: C91, D81, D90

Suggested Citation

Güth, Werner and Levati, M. Vittoria and Ploner, Matteo, Scenario-Based Satisficing in Saving: A Theoretical and Experimental Analysis (August 27, 2007). Jena Economic Research Paper No. 2007-049. Available at SSRN: https://ssrn.com/abstract=1022864 or http://dx.doi.org/10.2139/ssrn.1022864

Werner Güth

Max Planck Institute of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

M. Vittoria Levati (Contact Author)

Max Planck Society for the Advancement of the Sciences - Strategic Interaction Group ( email )

D-07745 Jena
Germany

Matteo Ploner

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

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