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 language | English |
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Pages (from-to) | 393-413 |
Number of pages | 21 |
Journal | SERIEs |
Volume | 4 |
Issue number | 4 |
DOIs | |
Publication status | Published - 1 Nov 2013 |
Keywords
- Experimental test
- Consumption
- Savings
- Lump-sum payment
- C91
- H55
- J26