Arbeitspapier

Rules of Thumb in Life-Cycle Saving Decisions

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.

Language
Englisch

Bibliographic citation
Series: Munich Discussion Paper ; No. 2011-16

Classification
Wirtschaft
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
Macroeconomics: Consumption; Saving; Wealth
Subject
saving
life-cycle models
bounded rationality
rules of thumb
Sparen
Lebenszyklus
Konsumtheorie
Zeitpräferenz
Beschränkte Rationalität
Einkommenshypothese
Entscheidung bei Unsicherheit
Theorie

Event
Geistige Schöpfung
(who)
Winter, Joachim K.
Schlafmann, Kathrin
Rodepeter, Ralf
Event
Veröffentlichung
(who)
Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
(where)
München
(when)
2011

DOI
doi:10.5282/ubm/epub.12334
Handle
URN
urn:nbn:de:bvb:19-epub-12334-9
Last update
10.03.20252025, 11:43 AM CET

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Object type

  • Arbeitspapier

Associated

  • Winter, Joachim K.
  • Schlafmann, Kathrin
  • Rodepeter, Ralf
  • Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät

Time of origin

  • 2011

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