Rules of Thumb in Life-Cycle Saving Decisions

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

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

Classification and Topics

• 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

Contributors, Places and Time

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

Further information

• DOI: doi:10.5282/ubm/epub.12334
• Handle: http://hdl.handle.net/10419/104347
• URN: urn:nbn:de:bvb:19-epub-12334-9
• Last update: 10.03.2025, 11:43 AM CET