Time Inconsistency and Retirement Choice
12 Pages Posted: 5 Mar 2015
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Time Inconsistency and Retirement Choice
Time Inconsistency and Retirement Choice
Date Written: February 26, 2015
Abstract
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 the choice of when to retire, then naïve hyperbolic discounters may borrow far less and start saving for retirement significantly earlier than exponential discounters.
Keywords: hyperbolic discounting, naiveté, retirement choice, time inconsistency, life-cycle consumption and saving
JEL Classification: C610, D030, D910
Suggested Citation: Suggested Citation