Exponential-Growth Bias and Lifecycle Consumption

Matthew Levy and Joshua Tasoff

Journal of the European Economic Association, 2016, vol. 14, issue 3, 545-583

Abstract: Exponential-growth bias (EGB) is the tendency for individuals to partially neglect compounding of exponential growth. We develop a model wherein biased agents misperceive the intertemporal budget constraint, and derive conditions for overconsumption and dynamic inconsistency. We construct an incentivized measure of EGB in a US-representative population and find substantial bias, with approximately one third of subjects estimated as the fully biased type. The magnitude of the bias is negatively associated with asset accumulation, and does not respond to a simple graphical intervention.

JEL-codes: D03 D11 D12 D14 D18 D91 E21 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:14:y:2016:i:3:p:545-583.

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