Rules of Thumb in Life-cycle Saving Decisions

Joachim Winter (), Kathrin Schlafmann and Ralf Rodepeter

Munich Reprints 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 optimisation problem. We simulate life-cycle saving decisions using three simple rules and compute utility losses relative to the solution of the optimisation problem. Our simulations suggest that utility losses induced by following simple decision rules are relatively low. Moreover, the two main saving motives reflected 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 backwards induction.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (19)

Published in Economic Journal 560 122(2012): pp. 479-501

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Rules of Thumb in Life‐cycle Saving Decisions (2012)
Working Paper: Rules of Thumb in Life-Cycle Saving Decisions (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenar:19721

Access Statistics for this paper

More papers in Munich Reprints in Economics from University of Munich, Department of Economics Ludwigstr. 28, 80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Tamilla Benkelberg ().