Lifecycle Consumption under Different Income Profiles: Experimental Evidence

62 Pages Posted: 19 Oct 2016

See all articles by John Duffy

John Duffy

University of California, Irvine

Yue Li

SUNY at Albany, College of Arts and Sciences, Economics

Date Written: October 17, 2016

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.

Keywords: Lifecycle Model, Consumption and Savings, Retirement Planning, Behavioral and Experimental Economics

JEL Classification: C91, D91, E21, H55

Suggested Citation

Duffy, John and Li, Yue, Lifecycle Consumption under Different Income Profiles: Experimental Evidence (October 17, 2016). Available at SSRN: https://ssrn.com/abstract=2854351 or http://dx.doi.org/10.2139/ssrn.2854351

John Duffy (Contact Author)

University of California, Irvine ( email )

Department of Economics
3151 Social Science Plaza
Irvine, CA 92697
United States
949-824-8341 (Phone)

Yue Li

SUNY at Albany, College of Arts and Sciences, Economics ( email )

1400 Washington Avenue
Albany, NY 12222
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
64
Abstract Views
534
rank
405,001
PlumX Metrics