TY  - UNPD
A1  - Groneck, Max
A1  - Ludwig, Alexander
A1  - Zimper, Alexander
T1  - Who saves more, the naive or the sophisticated agent?
N2  - We consider an additively time-separable life-cycle model for the family of power period utility functions u such that u0(c) = c−θ for resistance to inter-temporal substitution of θ > 0. The utility maximization problem over life-time consumption is dynamically inconsistent for almost all specifications of effective discount factors. Pollak (1968) shows that the savings behavior of a sophisticated agent and her naive counterpart is always identical for a logarithmic utility function (i.e., for θ = 1). As an extension of Pollak’s result we show that the sophisticated agent saves a greater (smaller) fraction of her wealth in every period than her naive counterpart whenever θ > 1 (θ < 1) irrespective of the specification of discount factors. We further show that this finding extends to an environment with risky returns and dynamically inconsistent Epstein-Zin-Weil preferences.
T3  - ICIR Working Paper Series - No. 38 [28.7.2021] 
KW  - Life-Cycle Model
KW  - Discount Functions
KW  - Dynamic Inconsistency
KW  - Choquet
KW  - Expected Utility Preferences
KW  - Epstein-Weil-Zin Preferences
Y1  - 2021
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/77258
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-772586
UR  - https://www.icir.de/fileadmin/user_upload/editors/documents/working_papers/wp_38_ludwig_groneck_zimper_28_07_2021.pdf
PB  - International Center for Insurance Regulation
CY  - Frankfurt am Main
ER  -