Rules of Thumb in Life-Cycle Saving Decisions

Joachim Winter (), Kathrin Schlafmann and Ralf Rodepeter

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: We analyse life-cycle saving decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimization problem. We simulate life-cycle saving decisions using three simple rules and compute utility losses relative to the solution of the optimization problem. Our simulations suggest that utility losses induced by following simple decision rules are relatively low. Moreover, the two main saving motives re ected by the canonical life-cycle model { long-run consumption smoothing and short-run insurance against income shocks { can be addressed quite well by saving rules that do not require computationally demanding tasks such as backward induction.

Keywords: saving; life-cycle models; bounded rationality; rules of thumb (search for similar items in EconPapers)
JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cbe and nep-cmp
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Rules of Thumb in Life‐cycle Saving Decisions (2012)
Working Paper: Rules of Thumb in Life-cycle Saving Decisions (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenec:12334

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