Rules of Thumb in Life-Cycle Saving Decisions

Winter, Joachim ; Schlafmann, Kathrin und Rodepeter, Ralf (Oktober 2011): Rules of Thumb in Life-Cycle Saving Decisions. Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2011-16

Abstract

We analyse life-cycle saving decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimization problem. We simulate life-cycle saving decisions using three simple rules and compute utility losses relative to the solution of the optimization problem. Our simulations suggest that utility losses induced by following simple decision rules are relatively low. Moreover, the two main saving motives re ected 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 backward induction.

• Dokumententyp: Paper
• Publikationsform: Preprint
• Keywords: saving, life-cycle models, bounded rationality, rules of thumb
• Fakultät: Volkswirtschaft ; Volkswirtschaft > Munich Discussion Papers in Economics ; Volkswirtschaft > Lehrstühle > Seminar für empirische Wirtschaftsforschung
• Themengebiete: 300 Sozialwissenschaften > 300 Sozialwissenschaft, Soziologie ; 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: D91, E21
• Sprache: Englisch

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