Rules of Thumb in Life-Cycle Saving Decisions

We analyse life-cycle saving decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimization problem. We simulate life-cycle saving decisions using three simple rules and compute utility losses relative to the solution of the optimization problem. Our simulations suggest that utility losses induced by following simple decision rules are relatively low. Moreover, the two main saving motives re ected by the canonical life-cycle model { long-run consumption smoothing and short-run insurance against income shocks { can be addressed quite well by saving rules that do not require computationally demanding tasks such as backward induction

Rules-of-thumb for guiding monetary policy

This article was originally published in the Board of Governors of the Federal Reserve System Open Market Policies and Operating Procedures-Staff Studies, July 1971. It is reprinted here as an addendum to these conference proceedings.Transparency ; Monetary policy

'Rules of Thumb' for Sovereign Debt Crises

Sovereign Default, Debt Crises

Economic projections and rules-of-thumb for monetary policy

Monetary policy analysts often rely on rules-of-thumb, such as the Taylor rule, to describe historical monetary policy decisions and to compare current policy to historical norms. Analysis along these lines also permits evaluation of episodes where policy may have deviated from a simple rule and examination of the reasons behind such deviations. One interesting question is whether such rules-of-thumb should draw on policymakers "forecasts of key variables such as inflation and unemployment or on observed outcomes. Importantly, deviations of the policy from the prescriptions of a Taylor rule that relies on outcomes may be due to systematic responses to information captured in policymakers" own projections. We investigate this proposition in the context of FOMC policy decisions over the past 20 years using publicly available FOMC projections from the biannual monetary policy reports to the Congress (Humphrey-Hawkins reports). Our results indicate that FOMC decisions can indeed be predominantly explained in terms of the FOMC´s own projections rather than observed outcomes. Thus, a forecast-based rule-of-thumb better characterizes FOMC decision-making. We also confirm that many of the apparent deviations of the federal funds rate from an outcome-based Taylor-style rule may be considered systematic responses to information contained in FOMC projections

Using Cox's Proportional Hazard Models to Implement Optimal Strategies: An Example from Behavioural Ecology

Simple behavioural rules, or "rules of thumb", which lead to behaviour that closely approximates an optimal strategy, have generated a lot of recent interest in the field of foraging behaviour. In this paper, we derive rules of thumb from a stochastic simulation model in which the foragers behave optimally. We use a particular biological system: the patch leaving behaviour of a parasitoid. We simulate parasitoids whose patch leaving behaviour is determined by a stochastic dynamic programming (SDP) model, while allowing parasitoids to make mistakes in their estimation of host density when arriving in a patch. We use Cox's proportional hazards models to obtain statistical rules of thumb from the simulated behaviour. This represents the first use of a proportional hazard approximation to generate rules of thumb from a complex optimal strategy

Rules of Thumb in Life-Cycle Saving Decisions

We analyse life-cycle saving decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimization problem. We simulate life-cycle saving decisions using three simple rules and compute utility losses relative to the solution of the optimization problem. Our simulations suggest that utility losses induced by following simple decision rules are relatively low. Moreover, the two main saving motives re ected by the canonical life-cycle model { long-run consumption smoothing and short-run insurance against income shocks { can be addressed quite well by saving rules that do not require computationally demanding tasks such as backward induction.saving; life-cycle models; bounded rationality; rules of thumb

Empirical Rules of Thumb for Choice under Uncertainty.

A substantial body of empirical evidence shows that individuals overweight extreme events and act in conflict with the expected utility theory. These findings were the primary motivation behind the development of the rank-dependent utility theory. The purpose of this paper is to demonstrate that some plausible empirical rules of thumb for choice under uncertainty can be rationalized by the rank-dependent utility theory.rank-dependent utility; maximin; maximax; mid-range