Estimating temptation and commitment over the life-cycle

Arbeitspapier

This paper estimates the importance of temptation (Gul and Pesendorfer, 2001) for consumption smoothing and asset accumulation in a structural life-cycle model. We use two complementary estimation strategies: first, we estimate the Euler equation of this model; and second we match liquid and illiquid wealth accumulation using the Method of Simulated Moments. We find that the utility cost of temptation is one-quarter of the utility benefit of consumption. Further, we show that allowing for temptation is crucial for correctly estimating the elasticity of intertemporal substitution: estimates of the EIS are substantially higher than without temptation. Finally, our Method of Simulated Moments estimation is able to match well the life-cycle accumulation profiles for both liquid and illiquid wealth only if temptation is part of the preference specification. Our findings on the importance of temptation are robust to the different estimation strategies.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: IFS Working Papers ; No. W20/24

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Consumer Economics: Empirical Analysis ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Macroeconomics: Consumption; Saving; Wealth ; Portfolio Choice; Investment Decisions ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
• Thema: life-cycle ; temptation preferences ; housing ; estimating Euler equations

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Kovacs, Agnes ; Low, Hamish ; Moran, Patrick
• Ereignis: Veröffentlichung
• (wer): Institute for Fiscal Studies (IFS)
• (wo): London
• (wann): 2020

Weitere Informationen

• DOI: doi:10.1920/wp.ifs.2020.2420
• Handle: http://hdl.handle.net/10419/223300
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ