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Exponential-growth bias and lifecycle consumption

Levy, Matthew and Tasoff, Joshua (2016) Exponential-growth bias and lifecycle consumption. Journal of the European Economic Association, 14 (3). 545 - 583. ISSN 1542-4766

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Identification Number: 10.1111/jeea.12149

Abstract

Exponential-growth bias (EGB) is the tendency for individuals to partially neglect compounding of exponential growth. We develop a model wherein biased agents misperceive the intertemporal budget constraint, and derive conditions for overconsumption and dynamic inconsistency. We construct an incentivized measure of EGB in a US-representative population and find substantial bias, with approximately one third of subjects estimated as the fully biased type. The magnitude of the bias is negatively associated with asset accumulation, and does not respond to a simple graphical intervention.

Item Type: Article
Official URL: https://academic.oup.com/jeea
Additional Information: © 2015 European Economic Association
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Personal Finance
D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
D - Microeconomics > D1 - Household Behavior and Family Economics > D18 - Consumer Protection
D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis
Date Deposited: 14 Oct 2019 14:03
Last Modified: 20 Nov 2019 12:43
URI: http://eprints.lse.ac.uk/id/eprint/102087

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