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Learning and Visceral Temptation in Dynamic Saving Experiments

Brown, Alexander L. and Chua, Zhikang Eric and Camerer, Colin F. (2009) Learning and Visceral Temptation in Dynamic Saving Experiments. Quarterly Journal of Economics, 124 (1). pp. 197-231. ISSN 0033-5533. doi:10.1162/qjec.2009.124.1.197.

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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 β = 0.6–0.7).

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Brown, Alexander L.0000-0002-5582-5304
Camerer, Colin F.0000-0003-4049-1871
Additional Information:© 2009 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology. 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 editor Ed Glaeser for helpful comments. We also thank Julie Malmquist of the SSEL 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.
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ID Code:22287
Deposited By: Tony Diaz
Deposited On:09 Mar 2011 18:41
Last Modified:09 Nov 2021 16:04

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