Optimal Saving Rules for Loss-Averse Agents under Uncertainty

Arbeitspapier

Most empirical studies assume only monotonic preferences for households. Behavioral research however providessubstantial evidence that preferences for wealth are measured relative to a reference point. In this paper weintroduce and solve a two-period consumption and savings model for a loss-averse agent who measures utilityfrom consumption relative to a benchmark level. The solution is given as a parametric decision rule with oneunknown parameter that depends on the distribution of the return on saving. We find non-linearity in the fractionof wealth saved, where the specific saving pattern depends on the sign of the real return on savings. The amount of saving is nondecreasing in initial wealth and the riskiness of the return distribution.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 01-079/4

Classification and Topics

• Classification: Wirtschaft
• Subject: Consumption and savings ; behavioral value function ; loss aversion ; Sparen ; Konsumtheorie ; Risikoaversion ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Siegmann, Arjen H.
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2001

Further information

• Handle: http://hdl.handle.net/10419/85908
• Last update: 10.03.2025, 11:42 AM CET