|Winter, Joachim; Schlafmann, Kathrin; Rodepeter, Ralf (2012): Rules of Thumb in Life-cycle Saving Decisions. In: Economic Journal, Vol. 122, No. 560: pp. 479-501|
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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.
Economics > Chairs > Chair of Empirical Economics
|Subjects:||300 Social sciences > 330 Economics|
|Deposited On:||15. Apr 2014 08:53|
|Last Modified:||29. Apr 2016 09:17|
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Rules of Thumb in Life-Cycle Saving Decisions. (deposited 05. Oct 2011 11:58)
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