Who saves more, the naive or the sophisticated agent?

Max Groneck, Alexander Ludwig and Alexander Zimper

No 169, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We consider a class of additively time-separable life-cycle consumption-savings models with iso-elastic per period power utility featuring resistance to inter-temporal substitution of θ with linear consumption policy functions. The utility maximization problem is dynamically inconsistent for almost all specifications of effective discount factors. Pollak (1968) shows that the savings behavior of a sophisticated and a naive agent is identical with logarithmic utility (θ = 1). We extend this result by showing that the sophisticated agent saves in any period a greater fraction of her wealth than the naive agent if and only if θ ≥ 1, irrespective of the discount function.

Keywords: Life-Cycle Model; Discount Functions; Dynamic Inconsistency; Epstein-Zin- Weil Preferences (search for similar items in EconPapers)
JEL-codes: D15 D91 E21 (search for similar items in EconPapers)
Date: 2022, Revised 2022
New Economics Papers: this item is included in nep-age, nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Who saves more, the naive or the sophisticated agent? (2024)
Working Paper: Who Saves More, the Naive or the Sophisticated Agent? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:169

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