Self-Control and Loss Aversion in Intertemporal Choice

Journal of Socio-Economics, Volume 26, No. 5, pp. 513-424, 1997

12 Pages Posted: 29 Sep 2012

See all articles by Marcus Selart

Marcus Selart

Norwegian School of Economics (NHH) - Department of Strategy and Management

Niklas Karlsson

Goteborg University, Faculty of Social Sciences, Department of Psychology

Tommy Garling

Göteborg University

Date Written: 1997

Abstract

The life-cycle theory of saving behavior (Modigliani, 1988) suggests that humans strive towards an equal intertemporal distribution of wealth. However, behavioral life-cycle theory (Shefrin & Thaler, 1988) proposes that people use self control heuristics to postpone wealth until later in life. According to this theory, people use a system of cognitive budgeting known as mental accounting. In the present study it was found that mental accounts were used differently depending on if the income change was positive or negative. This was shown both in a representative nationwide sample of households and in a student sample. Respondents were more willing to cut down on their propensity to consume when faced with an income decrease than to raise it when the income increased. Furthermore, contrary to the predictions of behavioral life-cycle theory, it was found that the respondents adjusted their propensity to consume the most when the income increases or decreases took place immediately. Hence, it is suggested that theories of intertemporal choice (e.g., Loewenstein, 1988; Loewenstein & Prelec, 1992) provide a better account of the data than does the behavioral life-cycle theory.

Suggested Citation

Selart, Marcus and Karlsson, Niklas and Garling, Tommy, Self-Control and Loss Aversion in Intertemporal Choice (1997). Journal of Socio-Economics, Volume 26, No. 5, pp. 513-424, 1997. Available at SSRN: https://ssrn.com/abstract=2153786

Marcus Selart (Contact Author)

Norwegian School of Economics (NHH) - Department of Strategy and Management ( email )

Breiviksveien 40
N-5045 Bergen
Norway
+47 55 95 96 95 (Phone)

Niklas Karlsson

Goteborg University, Faculty of Social Sciences, Department of Psychology ( email )

P.O. Box 500
Goteborg, 40530
Sweden

Tommy Garling

Göteborg University ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

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