Learning and Visceral Temptation in Dynamic Saving Experiments* Academic Article uri icon

abstract

  • This paper tests two explanations for apparent undersaving in life cycle models: bounded rationality and a preference for immediacy. Each was addressed in a separate experimental study. In the first study, subjects saved too little initially-providing evidence for bounded rationality-but learned to save optimally within four repeated life cycles. In the second study, thirsty subjects who consume beverage sips immediately, rather than with a delay, show greater relative overspending, consistent with quasi-hyperbolic discounting models. The parameter estimates of overspending obtained from the second study, but not the first, are in range of several empirical studies of saving (with an estimated = 0.6-0.7). 2009 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

published proceedings

  • Quarterly Journal of Economics

author list (cited authors)

  • Brown, A. L., Chua, Z. E., & Camerer, C. F.

publication date

  • January 1, 2009 11:11 AM