Lifecycle Consumption under Different Income Profiles: Experimental Evidence
62 Pages Posted: 19 Oct 2016
Date Written: October 17, 2016
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
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