Anomalies: Saving, Fungibility, and Mental Accounts

1990 ◽  
Vol 4 (1) ◽  
pp. 193-205 ◽  
Author(s):  
Richard H Thaler

Last New Year's day, after a long evening of rooting the right team to victory in the Orange Bowl, I was lucky enough to win $300 in a college football betting pool. I then turned to the important matter of splurging the proceeds wisely. Would a case of champagne be better than dinner and a play in New York? At this point my son Greg came in and congratulated me. He said, “Gee Dad, you should be pretty happy. With that win you can increase your lifetime consumption by $20 a year!” Greg, it seems, had studied the life-cycle theory of savings. The theory is simple, elegant, and rational—qualities valued by economists. Unfortunately, as Courant, Gramlich, and Laitner observe “for all its elegance and rationality, the life-cycle model has not tested out very well.” In this column, however, I focus on an assumption of the life-cycle model that has not received very much attention, but which, if modified, can allow the theory to explain many of the savings anomalies that have been observed. The key assumption is fungibility. This column will review a small portion of the empirical savings literature, with the objective of showing how violations of fungibility, and more generally the role of self-control, strongly influences saving behavior.

2020 ◽  
Vol 8 (12) ◽  
pp. 63-72
Author(s):  
Srinivas Nowduri

The exponential increase in modern technological advancements within the business world, is impacting every national economy from different directions/perspectives. This research work focuses on main issues behind cyber economics along with cyber-economic values; based on cyber events and their associated financial damages. It also made a comparative study between cyber and financial metrics, based on a professional look at cybersecurity in modern digital firms. Then it emphasizes on the role of applied and behavioral economics, in digital forms. Finally propose a model for cyber economic growth vital for modern digital firms


2011 ◽  
Vol 16 (4) ◽  
pp. 493-517 ◽  
Author(s):  
Sang-Wook (Stanley) Cho

This paper constructs a quantitative general equilibrium life-cycle model with uninsurable labor income to account for the differences in wealth accumulation and homeownership between Korea and the United States. The model incorporates different structures in the housing market in the two countries, namely, the mortgage market and the rental arrangements. The results from the calibrated model quantitatively explain some empirical findings in the aggregate and life-cycle profiles of wealth and homeownership. Quantitative policy experiments show that the mortgage market alone can account for more than 40% of the differences in the aggregate homeownership ratios. When coupled with the rental arrangements, both institutions can account for approximately 52% of the differences in the cross-country homeownership ratios.


2015 ◽  
Vol 13 (1) ◽  
pp. 1
Author(s):  
Ricardo D. Brito ◽  
Paulo T. P. Minari

This article answers the question: how much wealth should a Brazilian accumulate along time to sustain his (her) consumption during retirement? Using a life-cycle model, we simulate scenarios for different household incomes, family size, and life circumstances, to obtain the additional saving effort needed by future beneficiaries of the Regime Geral de Previdência Social (RGPS). Given the current high replacement rates, we show that more than 95% of the population needs no additional savings during their working age, because they will enjoy an increase in their “free” per capita income during retirement. In other words, surprisingly, a low voluntary saving rate is the right decision from the perspective of an average Brazilian that plans a smooth consumption, in the belief that current social security arrangements will persist. Were it not for the very high banking spread, it would be optimal for the average Brazilian to borrow in the working age to increase his (her) consumption level.


2016 ◽  
Vol 21 (6) ◽  
pp. 1361-1388 ◽  
Author(s):  
Julia Le Blanc ◽  
Almuth Scholl

We employ a life-cycle model with income risk to analyze how tax-deferred individual accounts affect households' savings for retirement. We consider voluntary accounts as opposed to mandatory accounts with minimum contribution rates. We contrast add-on accounts with carve-out accounts that partly replace social security contributions. Quantitative results suggest that making add-on accounts mandatory has adverse welfare effects across income groups. Carve-out accounts generate positive welfare effects across all income groups, but gains are lower for low income earners. Default investment rules in individual accounts have a modest impact on welfare.


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