Learning and Visceral Temptation in Dynamic Saving Experiments-super-*

Alexander L. Brown, Zhikang Eric Chua and Colin F. Camerer
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Alexander L. Brown: Division of Humanities and Social Sciences, California Institute of Technology
Zhikang Eric Chua: Singapore Public Services Commission
Colin F. Camerer: Division of Humanities and Social Sciences, California Institute of Technology

The Quarterly Journal of Economics, 2009, vol. 124, issue 1, pages 197-231

Abstract: This paper tests two explanations for apparent undersaving in life cycle models: bounded rationality and a preference for immediacy. Each was addressed in a separate experimental study. In the first study, subjects saved too little initially-providing evidence for bounded rationality-but learned to save optimally within four repeated life cycles. In the second study, thirsty subjects who consume beverage sips immediately, rather than with a delay, show greater relative overspending, consistent with quasi-hyperbolic discounting models. The parameter estimates of overspending obtained from the second study, but not the first, are in range of several empirical studies of saving (with an estimated β = 0.6-0.7). (c) 2009 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

Date: 2009

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