ESTIMATING TEMPTATION AND COMMITMENT OVER THE LIFE CYCLE

Temptation and commitment in the laboratory

Temptation and self-control in intertemporal choice environments are receiving increasing attention in the theoretical economics literature. Nevertheless, there remains a scarcity of empirical evidence from controlled environments informing behavior under repeated temptations. This is unfortunate in light of the fact that in many natural environments, the same temptation must be repeatedly resi...

Optimal Commitment and the Type of Temptation

The main purpose of this paper is to describe how different assumptions about temptation and self-control affect the optimal borrowing and saving contracts in a simple stochastic income setting. I find that the optimal savings plan when temptation is myopic consists of a mandatory minimum level of savings, while the optimal plan for farsighted temptation can have several fully restrictive manda...

Life-cycle Models, Economic Puzzles and Temptation Preferences

This paper focuses on the difficulty of standard life-cycle models to predict the behavior observed in the reality, most noticeably the excess sensitivity of consumption to income, the under-provision for old-age consumption, the limited participation in the financial market, and the lack of asset decumulation after retirement. It shows that allowing for preference reversals, as it is the case ...

Temptation, Commitment, and Hand-to-Mouth Consumers∗

20% of U.S. households are “wealthy hand-to-mouth” who hold only illiquid assets. But why should they do so, since higher-yielding liquid assets are available? To rationalize this behavior, we build a life-cycle model with non-standard preferences: households are tempted to consume their liquid assets, and therefore purchase housing as a savings commitment device. As a result, they choose to be...

Stocks and Bonds over the Life Cycle