On average, “young”people underestimate whereas “old”people overestimate their chances to survive into the future. We adopt a Bayesian learning model of ambiguous survival beliefs which replicates these patterns. The model is embedded within a non-expected utility model of life-cycle consumption and saving. Our analysis shows that agents with ambiguous survival beliefs (i) save less than origin...

This paper studies the time-series behavior of consumption in a model that incorporates birth, death, and a precautionary motive for saving. Consumption of an individual agent is a random walk. However, aggregate consumption is a random walk if and only if the s u m of the death rate and population growth rate is zero. Failure of the random walk hypothesis should not be attributed to finite hor...

We perform a structural estimation of the preference parameters in a buffer-stock consumption model augmented with temptation disutility. We adopt a two-stage Method of Simulated Moments methodology to match our simulated moments with those observed in the US Survey of Consumer Finances. To identify the parameters we use liquid and quasi-liquid (retirement) wealth holdings at different ages as ...

We consider an economy à la Lucas (1978, Econometrica 46, 1429–1446) with a risk-averse representative agent. The exogenous growth rate of the economy follows a random walk. We characterize the set of utility functions for which it is efficient to discount more distant cash flows at a lower rate. The benchmark result is that, when the growth rate is almost surely nonnegative, the yield curve is...

We survey over 100 financial planners to assess their reasoning mode, intertemporal choices, risk aversion and preferences, and framing focus. Using the Cognitive Reflection Test, we find that financial planners are more analytical than the general population. Further tests show that the analytical planners are more financially patient and perform better in intertemporal choice problems. These ...

We introduce noisy belief equilibrium (NBE) for normal-form games in which players best respond to realizations. Axioms restrict distributions be unbiased with respect and responsive changes the opponents’ behavior. The axioms impose testable restrictions both within across games, we compare these those of regular quantal response (QRE) are placed on function as primitive. NBE can generate simi...

We study the impact of deliberation on intertemporal choices. Using multiple experiments, including a field in Democratic Republic Congo, we show that introduction waiting periods—a policy temporally separates information about choices from themselves—causes substantially less myopic decisions. These results cannot be captured by models exponential discounting nor present bias. Comparing effect...

We show that rational but inattentive agents can become polarized, even in expectation. This is driven by agents’ choice of not only how much information to acquire, also what type information. present optimal acquisition, and subsequent belief formation, depends crucially on the agent-specific status quo valuation. Beliefs systematically update away from realized truth with same initial belief...

We compare wealth holdings across two cohorts of the Health and Retirement Study: the early Baby Boomers in 2004, and individuals in the same age group in 1992. Levels and patterns of total net worth have changed relatively little over time, though Boomers rely more on housing equity than their predecessors. Most important, planners in both cohorts arrive close to retirement with much higher we...

In an exchange economy under uncertainty populated by multiple consumers, we how the heterogeneity in the individual consumers’ subjective beliefs affect the representative consumer’s utility function. We derive a formula that indicates that the more heterogeneous the individual consumers’ beliefs are, the higher probabilities the representative consumer’s belief attaches to extreme events that...