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Only Paul Could Go To Changchun

Improving Dynamic Optimization in Life-Cycle Consumption Experiments

4/3/2018

 
Abstract From:

 ESA 2018 world meeting in Berlin is now available at

​
https://www.economicscience.org/downloads/2018_ESA_Berlin.pdf

Luba Petersen
Simon Fraser University

Author(s): Guidon Fenig and Luba Petersen
​

ABSTRACT

We implement an individual-choice consumption-smoothing experiment in which participants play the role of utilitymaximizing consumers. Participants receive an exogenous stream of income, purchase and consume goods, and save in the form of bonds. The prices of goods are deterministic and known by the participants. We analyze how subjects' dynamic optimization compares to the predictions of a life-cycle model in environments with and without compounding return and dynamically fluctuating variables. We also investigate whether budgeting tools can improve financial planning. Non-choice data from the budgeting tools aids us in understanding where subjects exhibit difficulty optimizing. Finally, we explore whether subjects' ability to dynamically optimize is associated with subjects' financial literacy or cognitive abilities. 


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