An experimental test on dynamic consumption and lump-sum pensions

Enrique Fatás, Juan A. Lacomba, Francisco Lagos, Ana I. Moro-Egido

Research output: Contribution to journalArticle

Abstract

This article examines the potential risks on consumption behavior of lump-sum payments. As a pension, lump-sum payments could be consumed too fast and generate an increase of poverty rates. We experimentally investigate consumption behavior in an inter-temporal decision-making setting. Subjects make consumption and saving decisions in an environment with two central features: first, there exists a decreasing probability of survival; and second, in addition to the regular income they get while active, they receive a unique lump-sum payment when retired. The results of this experiment show that rather than consuming too much during their income periods, subjects show a persistent precautionary saving behavior and over-save in the vast majority of periods. This result seems to be mainly driven by the risk averse individuals.
Original languageEnglish
Pages (from-to)393-413
Number of pages21
JournalSERIEs
Volume4
Issue number4
DOIs
Publication statusPublished - 1 Nov 2013

Keywords

  • Experimental test
  • Consumption
  • Savings
  • Lump-sum payment
  • C91
  • H55
  • J26

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