Exponential-growth bias and lifecycle consumption

Matthew Levy and Joshua Tasoff

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: household behavior; consumer economics; exponential-growth bias (search for similar items in EconPapers)
JEL-codes: D11 D12 D14 D18 D91 E21 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2016-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

Published in Journal of the European Economic Association, 1, June, 2016, 14(3), pp. 545 - 583. ISSN: 1542-4766

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:102087

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