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Life cycle saving: Insights from the perspective of bounded rationality

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  • Binswanger, Johannes

Abstract

This paper provides a new life cycle model that takes into account key elements of bounded rationality. The paper shows that the model can account for patterns in the data that are hard to explain by the standard life cycle model. Among other patterns, the model predicts that, typically, the young either hold no equity or their equity portfolio share is rather low and then increases over working life. The analytical solution of the model demonstrates its high degree of tractability.

Suggested Citation

  • Binswanger, Johannes, 2012. "Life cycle saving: Insights from the perspective of bounded rationality," European Economic Review, Elsevier, vol. 56(3), pages 605-623.
    • Handle: RePEc:eee:eecrev:v:56:y:2012:i:3:p:605-623
    DOI: 10.1016/j.euroecorev.2012.01.003
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    2. Tetsuo Yamamori & Kazuyuki Iwata & Akira Ogawa, 2014. "An Experimental Study of Money Illusion in Intertemporal Decision Making," Working Papers e085, Tokyo Center for Economic Research.

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    More about this item

    Keywords

    Behavioral economics; Bounded rationality; Feasibility goals; Hierarchical decision making; Life cycle saving; Portfolio choice;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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