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Decision Rules for Precautionary and Retirement Savings

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  • Dina Tasneem
  • Jim Engle-Warnick

Abstract

We report results from an experiment that compares precautionary savings behavior with retirement savings behavior. We find that more than 30% of precautionary savings behavior can be categorized as optimal or near optimal, while virtually all of this behavior disappears in favor of simple decision rules that specify constant consumption in each period when retirement savings is added as a motive. We discuss the the costs and benefits of these rules, which make a complex decision-making environment manageable. Our experiment is the first to identify how decision-making changes when agents are required to save for retirement.

Suggested Citation

  • Dina Tasneem & Jim Engle-Warnick, 2018. "Decision Rules for Precautionary and Retirement Savings," CIRANO Working Papers 2018s-22, CIRANO.
    • Handle: RePEc:cir:cirwor:2018s-22
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    File URL: https://cirano.qc.ca/files/publications/2018s-22.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dina Tasneem & Marine de Montaignac & Jim Engle-Warnick & Audrey Azerot, 2018. "A Laboratory Study of Nudge with Retirement Savings," CIRANO Working Papers 2018s-23, CIRANO.
    2. Duffy, John & Li, Yue, 2019. "Lifecycle consumption under different income profiles: Evidence and theory," Journal of Economic Dynamics and Control, Elsevier, vol. 104(C), pages 74-94.
    3. Miller, Logan & Rholes, Ryan, 2023. "Joint vs. Individual performance in a dynamic choice problem," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 897-934.

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    More about this item

    Keywords

    Precautionary Savings; Retirement Savings; Dynamic Optimization; Decision Heuristics;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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