Experiments on Intertemporal Consumption with Habit Formation and Social Learning
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Experiments on Intertemporal Consumption with Habit Formation and Social Learning
Experiments on Intertemporal Consumption with Habit Formation and Social Learning
Experiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learningt.com.sgColin F. CainererDivision oi HSS 228-77 Caltech Pasadena CA 91125 camererộihss.caltech.edu18 October 2022. This research was supported by NSF grant SES-0078911. Thanks to Paul Kattuman and Tanga McDaniel, who read many drafts of this report. Julie Malmquist of the SSEL Caltech lab and Chong Experiments on Intertemporal Consumption with Habit Formation and Social LearningJuin Kuan (NUS) were helpful in running experiments.AbstractThe standard approach to modeling intertemporal consumption is to assume that consumers arExperiments on Intertemporal Consumption with Habit Formation and Social Learning
e solving a dynamic optimization problem. Under realistic descriptions of utility and uncertainty—stochastic income and habit formation-- these intertExperiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learningpate the negative "internality" of current consumption on future utility, through habits. Yet recent empirical evidence has shown that consumption behavior of the average household in society conforms fairly well to the prescriptions of the optimal solution. This paper establishes potential ways in Experiments on Intertemporal Consumption with Habit Formation and Social Learningwhich consumers can attain near-optimal consumption behavior despite their mathematical and computational limitations in solving the complicated optimExperiments on Intertemporal Consumption with Habit Formation and Social Learning
ization problem. Individual and social learning mechanisms are proposed to be one possible link. Using an experimental approach, results show that by Experiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learningffectively towards optimal consumption. While consumers persistently spend too much in early periods, they learn rapidly from their own experience (and "socially learn" from experience of others) to consume amounts close to optimal levels. Their spending Is much more closely linked to optimal consum Experiments on Intertemporal Consumption with Habit Formation and Social Learningption (conditional on earlier spending) than to rule-of-thumb spending of current income or cash-on-hand. Despite their approximate optimality, consumExperiments on Intertemporal Consumption with Habit Formation and Social Learning
ers exhibit dramatic "loss-aversion" by strongly avoiding consumption levels which create negative levels of period-by-period utility (even when optimExperiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learningient is remarkably close to the coefficient of loss-aversion documented In a wide variety of risky and riskless choice domains, which shows that even when consumption is nearly-optimal, behavioral influences sharply affect decisions.21. IntroductionThis paper explores how well participants make savi Experiments on Intertemporal Consumption with Habit Formation and Social Learningngs and spending decisions in a 30-period experimental environment. The environment is challenging because future income is uncertain, and the utilityExperiments on Intertemporal Consumption with Habit Formation and Social Learning
from consumption is lowered by previous consumption habits. IÍ participants spend loo much in early periods, they will have loo little precautionary Experiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learningt because there is little agreement on how well consumers optimize savings and consumption over the life cycle in naturally-occulting settings. Until the 199O’s. most models assumed consumers solved a dynamic programming problem under assumptions about uncertainty and utility which are unrealistic ( Experiments on Intertemporal Consumption with Habit Formation and Social Learningc.g., replacing stochastic future income with a certainty-equivalent; see Carroll, 2001. for a recent summary), rhe fact that actual savings patternsExperiments on Intertemporal Consumption with Habit Formation and Social Learning
are not consistent with the predictions of these models is irrelevant if the assumptions of those models do not match the world in which consumers livExperiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learningnist view has emerged which suggests that many aspects of household savings behavior which look mistaken, compared to optimal saving in simpler models, actually conforms fairly well to the optimal solution of the more realistic new-generation models (Deaton, 1991; Carroll, 1997; Cdgelti, 2003; Gouri Experiments on Intertemporal Consumption with Habit Formation and Social Learningnchas and Parker, 2002). But this conclusion is perplexing because solving the models is extremely difficult. How can consumers who are often ignorantExperiments on Intertemporal Consumption with Habit Formation and Social Learning
about basic principles of financial planning (e.g., Bernheim 1998) be reaching reasonable savings decisions in environments so complex that clever ecExperiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learningidely studied in game thcoiy’, macroeconomics' and finance1, there has been surprisingly little work on loaming about1 Note that wliilc many aspects of savings arc consistent widi tile new precautionary-savings models, there arc plenty of Ollier anomalies. For example, marginal propensities to save Experiments on Intertemporal Consumption with Habit Formation and Social Learningand consume vary across categories UÍ income (Shefrin and Thaler, 1992; Sonifies, 1999): and some empirical facts are consistent with a model in whichExperiments on Intertemporal Consumption with Habit Formation and Social Learning
people are loss-averse toward drops in consumption (e.g., Bowman, Minehart, Rabin, 1999 and Figures 7a-h below).7 See recent surveys by Gale (1996), Experiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learning4). Arthur et al. (1997) and Lettau (1997).3intertemporal consumption (e.g., Ballinger et. al., in press; Allen and Carroll, 2001). Similarly, there is little experimental work on how well participants optimize dynamically.Allen and Carroll (2001) explored the proposition that good consumption rules Experiments on Intertemporal Consumption with Habit Formation and Social Learning can be learned through experience. Using computer simulations, they show that consumers could learn a good consumption rule using trial-and-error, buExperiments on Intertemporal Consumption with Habit Formation and Social Learning
t only if they have simulated consumers to have large amounts of experience (roughly a million years of model time). They suggested social learning, iExperiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learningailable at the same time. However, it is well-known that social learning can create convergence to sub-optimal behavior. For example. Bikhchandani et al. (1998) and Gale (1996) show-how social learning can lead to •informational cascades’ or 'herd behavior’, if agents ‘ignore’ their own information Experiments on Intertemporal Consumption with Habit Formation and Social Learningand simply imitate the behavior of others. Therefore, social learning mechanisms are not guaranteed to lead to optimal savings.This paper explores leaExperiments on Intertemporal Consumption with Habit Formation and Social Learning
rning of savings-consumption decisions using experimental techniques. The approach allows tight control over participant’s preferences and beliefs aboExperiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learningfrom optimality. By repeating the 30-period ’lifetimes’’ several times, and providing social learning information about decisions of others, we can also see how well participants learn from their own experience and learn socially from experiences of others. The experimental design is not meant to cl Experiments on Intertemporal Consumption with Habit Formation and Social Learningosely mimic how actual people might learn (since you only live once), but simply to investigate whether several lifetimes of learning—and learning froExperiments on Intertemporal Consumption with Habit Formation and Social Learning
m lifecycle savings of others—could conceivably lead to optimality. If the experiments show that convergence to optimality is slow, even in this relatExperiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social Learningeople leant within one lifetime. On the other hand, if learning Is reasonably fast under some conditions, that suggests further exploration of whether the conditions which facilitate learning apply to average consumers.Earlier experiments found that people are bad at dynamic optimization (e.g., Kotl Experiments on Intertemporal Consumption with Habit Formation and Social Learningikoff, Johnson and Samuelson, 2001). Fehr and Zych (1998) studied an experimental environment in which players develop habits which reduce future utilExperiments on Intertemporal Consumption with Habit Formation and Social Learning
ity (as in models of addiction, and some specifications of consumer utility5). Their participants do not appreciate the negative “intemality” created Experiments on Intertemporal Consumption with Habit Formation and Social LearningZhikdiig ChuaSingapore Public Service Commission Scholar eczk@singnet Experiments on Intertemporal Consumption with Habit Formation and Social LearningDusenberry (1949). More recent papers include Van de Stadt et al. (1985), and Carroll and Weil4future utility, so they consume too much in early periods relative to optimal consumption. Ballinger et al. (in press98) studied social learning in intertemporal consumption experiments with income uncerta Experiments on Intertemporal Consumption with Habit Formation and Social Learninginty, by allowing participants to give verbal advice to others. They find that social learning helps actual spending decisions converge towards optimaExperiments on Intertemporal Consumption with Habit Formation and Social Learning
lity, but substantial deviations remain.Our experimental design combines the income uncertainty in Ballinger et al’s experiment and the habit formatioGọi ngay
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