Work

Exponential-growth Bias and Lifecycle Consumption

Year: 2015

Type: article

Abstract: Exponential-growth bias (EGB) is the tendency for individuals to partially neglect compounding of exponential growth. We develop a model wherein biased agents misperceive the intertemporal budget constraint, and derive conditions for overconsumption and dynamic inconsistency. We construct an incentivized measure of EGB in a US-representative population and find substantial bias, with approximately one third of subjects estimated as the fully biased type. The magnitude of the bias is negatively associated with asset accumulation, and does not respond to a simple graphical intervention.

Source: Journal of the European Economic Association

DOI: 10.1111/jeea.12149

Authors: Matthew Levy, Joshua Tasoff

Institutions: London School of Economics and Political Science, Claremont Graduate University

Language: English

Topic: Decision-Making and Behavioral Economics

Subfield: General Decision Sciences

Field: Decision Sciences

Domain: Social Sciences

Open Access status: green

Funders: National Science Foundation, Fletcher Jones Foundation, Claremont Graduate University

Award: Collaborative Research: Time-Sharing Experiments for the Social Sciences (TESS): Proposal for Renewed Support