Rules of Thumb in Life‐Cycle Saving Decisions

Dados Bibliográficos

ID9713877
AutoresJoachim Winter (0000-0003-2460-619X, Deutsches Museum), Joachim K Winter (University of Munich BMW Museum, Munich), Kathrin Schlafmann (University of Munich BMW Museum, Munich), Ralf Rodepeter (University of Munich BMW Museum, Munich)
Ano2012
Volume122
Fascículo560
Páginas479-501
Data de publicação2012-05-01
Peer ReviewedSim
Open AccessSim
TipoARTICLE
PeriódicoThe Economic Journal (JOURNAL)
Identificadores do periódicoISSN: 0013-0133 • E-ISSN: 1468-0297
EditoraOxford University Press (OUP) (PUBLISHER)
DOI10.1111/j.1468-0297.2012.02502.x
OpenAlexW2162185584
IdiomaEN
Citações recebidas5
Referências citadas55

We analyse life‐cycle saving decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimisation problem. We simulate life‐cycle saving decisions using three simple rules and compute utility losses relative to the solution of the optimisation problem. Our simulations suggest that utility losses induced by following simple decision rules are relatively low. Moreover, the two main saving motives reflected 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 backwards induction

Algorithm · Backward induction · Business cycle · Consumption (sociology · Consumption smoothing · Econometrics · Economics · Heuristics · Macroeconomics · Mathematical economics · Mathematical optimization · Rule of thumb · Simple (philosophy · Smoothing · Computer Science · Decision-Making and Behavioral Economics · Financial Literacy, Pension, Retirement Analysis · Housing Market and Economics · Mathematics