Pensions and Consumption Decisions: Evidence from the Lab

CentER Discussion Paper Series No. 2015-014

64 Pages Posted: 6 Mar 2015

See all articles by Eline van der Heijden

Eline van der Heijden

Tilburg University, CentER

Emre Koc

Tilburg University - Department of Economics

Jenny Ligthart

Tilburg University - Center for Economic Research (CentER)

A. C. Meijdam

Tilburg University - Center for Economic Research (CentER); Tilburg University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 5, 2015

Abstract

Pensioners have increasingly more control over their income streams as a result of pension reforms, which gives them more freedom to save for their old age. We devise an experiment where subjects face a life-cycle optimization task with lifetime uncertainty and a given lifetime income. The aims are to test whether subjects' saving and consumption behaviour is affected by: (i) the steepness of the income profile; and (ii) the freedom to choose the steepness of the income profile before the optimization task. In general, subjects' consumption decisions deviate systematically from the optimal ones in the sense that they are overly sensitive to current income and financial wealth. Subject behavior is unaffected by the steepness of the income. When subjects are given such a flexibility their consumption decisions are relatively more sensitive to current income and financial wealth.

Keywords: Pensions, life-cycle model, dynamic optimization, rule of thumb, lab

JEL Classification: C91, G23, H55

Suggested Citation

van der Heijden, Eline and Koc, Emre and Ligthart, Jenny and Meijdam, A.C. (Lex), Pensions and Consumption Decisions: Evidence from the Lab (March 5, 2015). CentER Discussion Paper Series No. 2015-014, Available at SSRN: https://ssrn.com/abstract=2574183 or http://dx.doi.org/10.2139/ssrn.2574183

Eline Van der Heijden

Tilburg University, CentER ( email )

P.O. Box 90153
Department of Economics
5000 LE Tilburg
Netherlands

Emre Koc (Contact Author)

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Jenny Ligthart

Tilburg University - Center for Economic Research (CentER) ( email )

A.C. (Lex) Meijdam

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 23 85 (Phone)
+31 13 466 30 42 (Fax)

Tilburg University - Department of Economics

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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