Learning and Visceral Temptation in Dynamic Savings Experiments
Abstract
In models of optimal savings with income uncertainty and habit formation, people should save early to create a buffer stock, to cushion bad income draws and limit the negative internality from habit formation. In experiments in this setting, people save too little initially, but learn to save optimally within four repeated lifecycles, or 1-2 lifecycles with "social learning." Using beverage rewards (cola) to create visceral temptation, thirsty subjects who consume immediately overspend compared to subjects who only drink after time delay. The relative overspending of immediate-consumption subjects is consistent with hyperbolic discounting and dual-self models. Estimates of the present-bias choices are β=0.6-0.7, which are consistent with other studies (albeit over different time horizons).
Additional Information
This research was supported by NSF grant SES-0078911. We thank Chris Carroll, Daniel Houser, Paul Kattman, George Loewenstein, Tanga McDaniel, John Hey, Nat Wilcox, three anonymous referees and an editor for helpful comments. We also thank Julie Malmquist of the SSEL Caltech lab, Chong Juin Kuan (NUS), Hackjin Kim, Tony Bruguier, and especially Min Jeong Kang (who ran several of the beverage-condition subjects herself) for help in doing the experiments.Attached Files
Published - savingsR2_1_.pdf
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Additional details
- Eprint ID
- 22505
- Resolver ID
- CaltechAUTHORS:20110225-081750755
- SES-0078911
- NSF
- Created
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2011-02-25Created from EPrint's datestamp field
- Updated
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2020-08-03Created from EPrint's last_modified field