The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation
The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation
Angeletos, George-Marios; Laibson, David; Repetto, Andrea; Tobacman, Jeremy; Weinberg, Stephen
2001-08-01 00:00:00
Abstract Laboratory and field studies of time preference find that discount rates are much greater in the short run than in the long run. Hyperbolic discount functions capture this property. This paper presents simulations of the savings and asset allocation choices of households with hyperbolic preferences. The behavior of the hyperbolic households is compared to the behavior of exponential households. The hyperbolic households borrow much more frequently in the revolving credit market. The hyperbolic households exhibit greater consumption income comovement and experience a greater drop in consumption around retirement. The hyperbolic simulations match observed consumption and balance sheet data much better than the exponential simulations.
http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.pngJournal of Economic PerspectivesAmerican Economic Associationhttp://www.deepdyve.com/lp/american-economic-association/the-hyperbolic-consumption-model-calibration-simulation-and-empirical-DRpkKqXKdM
The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation
Abstract Laboratory and field studies of time preference find that discount rates are much greater in the short run than in the long run. Hyperbolic discount functions capture this property. This paper presents simulations of the savings and asset allocation choices of households with hyperbolic preferences. The behavior of the hyperbolic households is compared to the behavior of exponential households. The hyperbolic households borrow much more frequently in the revolving credit market. The hyperbolic households exhibit greater consumption income comovement and experience a greater drop in consumption around retirement. The hyperbolic simulations match observed consumption and balance sheet data much better than the exponential simulations.
Journal
Journal of Economic Perspectives
– American Economic Association
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