Hyperbolic discounting with naiveté is widely believed to provide a better explanation than exponential discounting of why people borrow so much and why they wait so long to save for retirement. We reach a different set of conclusions. We show that if financial planning is enriched to include...

In this paper we propose a new strategy for comparing the behavior of a hyperbolic discounter who possesses self-control problems to an exponential discounter who does not. Our strategy controls for inherent differences in overall levels of impatience across discount functions, which thereby...

We quantify the welfare gains from better retirement planning using a model in which retirement planning is time inconsistent. A modest increase in a household’s planning horizon by just a few years generates large aggregate and individual welfare gains.

Hyperbolic discounting with naiveté is widely believed to provide a better explanation than exponential discounting of why people borrow so much and why they wait so long to save for retirement. We reach a different set of conclusions. We show that if financial planning is enriched to include...

We present a rule-of-thumb consumption model with participation in a ``Save More TomorrowTM'' (SMarT) plan, and we analytically derive the fraction of life-cycle wage increases that must be saved to offset a reduction in social security benefits resulting from an aging population (holding taxes...

We study the optimal size of a pay-as-you-go social security program for an economy composed of both permanent-income and hand-to-mouth consumers. While previous work on this topic is framed within a two-period partial equilibrium setup, we study this issue in a life-cycle general equilibrium...

This paper considers the quantitative role of growth in the size of the social security program in contributing to the collapse of personal saving in the U.S. over the last few decades. Using a calibrated, general equilibrium life-cycle model this paper shows that social security may not be to...

Contrary to the usual presumption that welfare is maximized if consumers behave rationally, we show in a two-period overlapping generations model that there always exists a rule of thumb that can weakly improve upon the lifecycle/permanent-income rule in general equilibrium with irrational...

Contrary to the usual presumption that welfare is maximized if consumers behave rationally, we show in a two-period overlapping generations model that there always exists a rule of thumb that can weakly improve upon the lifecycle/permanent-income rule in general equilibrium with irrational...