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Saving decisions under bounded and heterogeneous sophistication

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  • Aromí, Daniel

    (Instituto Interdisciplinario de Economía Política de Buenos Aires (IIEP-BAires), Facultad de Ciencias Económicas, Universidad de Buenos Aires y Consejo Nacional de Investigaciones Científicas y Técnicas)

Abstract

We consider saving decisions in an economy where agents are characterized by heterogeneous levels of sophistication. In our simple setting, we are able to make a distinction between aspects of fundamental sophistication and strategic sophistication. The equilibrium of this economy is inefficient as sophisticated households do not offset the distortions that result from information and behavior of naive households. We show instances in which increments in the ability of sophisticated households to perceive more precise information results in less efficient outcomes. Additionally, we identify simple policy interventions that would increase welfare levels. Key Words: saving decisions, heterogeneity, sophistication.

Suggested Citation

  • Aromí, Daniel, 2012. "Saving decisions under bounded and heterogeneous sophistication," Revista de Economía Política de Buenos Aires, Universidad de Buenos Aires. Facultad de Ciencias Económicas., issue 11, pages 119-146, December.
    • Handle: RePEc:ake:repba1:y:2012:i:11:p:119-146
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    More about this item

    Keywords

    savings; savings decisions;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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