Pensions and Consumption Decisions: Evidence From the Lab

E.C.M. van der Heijden, E. Koç, J.E. Ligthart, A.C. Meijdam

Research output: Working paperDiscussion paperOther research output

514 Downloads (Pure)

Abstract

Pensioners have increasingly more control over their income streams as a result of pension reforms, which gives them more freedom to save for their old age. We devise an experiment where subjects face a life-cycle optimization task with lifetime uncertainty and a given lifetime income. The aims are to test whether subjects' saving and consumption behaviour is affected by: (i) the steepness of the income profile; and (ii) the freedom to choose the steepness of the income prole before the optimization task. In general, subjects' consumption decisions deviate systematically from the optimal ones in the sense that they are overly sensitive to current income and financial wealth. Subject behavior is unaffected by the steepness of the income. When subjects are given such a flexibility their consumption decisions are relatively more sensitive to current income and financial wealth.
Original languageEnglish
Place of PublicationTilburg
PublisherDepartment of Economics
Number of pages64
Volume2015-014
Publication statusPublished - 3 Mar 2015

Publication series

NameCentER Discussion Paper
Volume2015-014

Fingerprint

Income
Pensions
Financial wealth
Uncertainty
Old age
Consumption behavior
Pension reform
Life cycle
Saving behavior
Experiment

Keywords

  • pensions
  • life-cycle model
  • Dynamic Optimization
  • rule of thumb
  • lab experiment

Cite this

van der Heijden, E. C. M., Koç, E., Ligthart, J. E., & Meijdam, A. C. (2015). Pensions and Consumption Decisions: Evidence From the Lab. (CentER Discussion Paper; Vol. 2015-014). Tilburg: Department of Economics.
van der Heijden, E.C.M. ; Koç, E. ; Ligthart, J.E. ; Meijdam, A.C. / Pensions and Consumption Decisions: Evidence From the Lab. Tilburg : Department of Economics, 2015. (CentER Discussion Paper).
@techreport{3de611f3a0004281974729577a508867,
title = "Pensions and Consumption Decisions:: Evidence From the Lab",
abstract = "Pensioners have increasingly more control over their income streams as a result of pension reforms, which gives them more freedom to save for their old age. We devise an experiment where subjects face a life-cycle optimization task with lifetime uncertainty and a given lifetime income. The aims are to test whether subjects' saving and consumption behaviour is affected by: (i) the steepness of the income profile; and (ii) the freedom to choose the steepness of the income prole before the optimization task. In general, subjects' consumption decisions deviate systematically from the optimal ones in the sense that they are overly sensitive to current income and financial wealth. Subject behavior is unaffected by the steepness of the income. When subjects are given such a flexibility their consumption decisions are relatively more sensitive to current income and financial wealth.",
keywords = "pensions, life-cycle model, Dynamic Optimization, rule of thumb, lab experiment",
author = "{van der Heijden}, E.C.M. and E. Ko{\cc} and J.E. Ligthart and A.C. Meijdam",
year = "2015",
month = "3",
day = "3",
language = "English",
volume = "2015-014",
series = "CentER Discussion Paper",
publisher = "Department of Economics",
type = "WorkingPaper",
institution = "Department of Economics",

}

van der Heijden, ECM, Koç, E, Ligthart, JE & Meijdam, AC 2015 'Pensions and Consumption Decisions: Evidence From the Lab' CentER Discussion Paper, vol. 2015-014, Department of Economics, Tilburg.

Pensions and Consumption Decisions: Evidence From the Lab. / van der Heijden, E.C.M.; Koç, E.; Ligthart, J.E.; Meijdam, A.C.

Tilburg : Department of Economics, 2015. (CentER Discussion Paper; Vol. 2015-014).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Pensions and Consumption Decisions:

T2 - Evidence From the Lab

AU - van der Heijden, E.C.M.

AU - Koç, E.

AU - Ligthart, J.E.

AU - Meijdam, A.C.

PY - 2015/3/3

Y1 - 2015/3/3

N2 - Pensioners have increasingly more control over their income streams as a result of pension reforms, which gives them more freedom to save for their old age. We devise an experiment where subjects face a life-cycle optimization task with lifetime uncertainty and a given lifetime income. The aims are to test whether subjects' saving and consumption behaviour is affected by: (i) the steepness of the income profile; and (ii) the freedom to choose the steepness of the income prole before the optimization task. In general, subjects' consumption decisions deviate systematically from the optimal ones in the sense that they are overly sensitive to current income and financial wealth. Subject behavior is unaffected by the steepness of the income. When subjects are given such a flexibility their consumption decisions are relatively more sensitive to current income and financial wealth.

AB - Pensioners have increasingly more control over their income streams as a result of pension reforms, which gives them more freedom to save for their old age. We devise an experiment where subjects face a life-cycle optimization task with lifetime uncertainty and a given lifetime income. The aims are to test whether subjects' saving and consumption behaviour is affected by: (i) the steepness of the income profile; and (ii) the freedom to choose the steepness of the income prole before the optimization task. In general, subjects' consumption decisions deviate systematically from the optimal ones in the sense that they are overly sensitive to current income and financial wealth. Subject behavior is unaffected by the steepness of the income. When subjects are given such a flexibility their consumption decisions are relatively more sensitive to current income and financial wealth.

KW - pensions

KW - life-cycle model

KW - Dynamic Optimization

KW - rule of thumb

KW - lab experiment

M3 - Discussion paper

VL - 2015-014

T3 - CentER Discussion Paper

BT - Pensions and Consumption Decisions:

PB - Department of Economics

CY - Tilburg

ER -

van der Heijden ECM, Koç E, Ligthart JE, Meijdam AC. Pensions and Consumption Decisions: Evidence From the Lab. Tilburg: Department of Economics. 2015 Mar 3. (CentER Discussion Paper).