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 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

Savings decisions under life-time and earnings uncertainty : empirical evidence from West German household data

We analyze a model of life-cycle savings decisions which allows for both life-time and income uncertainty. We then simulate life-cycle saving rates based on empirical income processes estimated from West German household data. Our main findings are, first, that allowing for mortality risk improves the life-cycle model's predictions slightly, and second, that simulated saving rates still fail to match their empirical counterparts. While our model correctly predicts differential peak saving rates during working life for three household types that face different income processes, it cannot explain an important salient feature of saving in Germany: Empirically, there is almost no post-retirement dissaving, while our life-cycle model predicts substantial dissaving even though we control for the generous German pension system which results in relatively high post-retirement income

Rules of thumb in life-cycle savings models

We analyze life-cycle savings decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimization problem. The decision rules we explore are a simple Keynesian rule where consumption follows income; a simple consumption rule where only a fraction of positive income shocks is saved; a rule that corresponds to the permanent income hypothesis; and two rules that have been found in experimental studies. Using these rules, we simulate life-cycle savings decisions numerically and compute the utility losses relative to the backwards solution of the intertemporal optimization problem. Our central finding is that the utility losses induced by rule-of-thumb behavior are relatively low. We conclude that behaving optimally, in the sense of solving an intertemporal optimization model, is not only costly, it is also not much better than using simple heuristics. Our results might also explain why optimization models typically fit the main features of empirical data quite well although optimizing behavior itself is frequently rejected

Savings decisions under life-time and earnings uncertainty:

We analyze a model of life-cycle savings decisions which allows for both life-time and income uncertainty. We then simulate life-cycle saving rates based on empirical income processes estimated from West German household data. Our main findings are, first, that allowing for mortality risk improves the life-cycle model's predictions slightly, and second, that simulated saving rates still fail to match their empirical counterparts. While our model correctly predicts differential peak saving rates during working life for three household types that face different income processes, it cannot explain an important salient feature of saving in Germany: Empirically, there is almost no post-retirement dissaving, while our life-cycle model predicts substantial dissaving even though we control for the generous German pension system which results in relatively high post-retirement income.

Rules of Thumb in Life-Cycle Savings Models

We analyze life-cycle savings decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimization problem. The decision rules we explore are a simple Keynesian rule where consumption follows income; a simple consumption rule where only a fraction of positive income shocks is saved; a rule that corresponds to the permanent income hypothesis; and two rules that have been found in experimental studies. Using these rules, we simulate life-cycle savings decisions numerically and compute the utility losses relative to the backwards solution of the intertemporal optimization problem. Our central finding is that the utility losses induced by rule-of-thumb behavior are relatively low. We conclude that behaving optimally, in the sense of solving an intertemporal optimization model, is not only costly, it is also not much better than using simpler heuristics which do not require backward induction. Our results might also explain why optimization models typically fit the main features of empirical data quite well although optimizing behavior itself is frequently rejected.

Crossing the Line: Overcoming Knowledge Boundaries in Enterprise Transformation

Enterprise transformations are fundamental changes in an organization. Such changes typically affect different stakeholder groups (e.g., program managers, business managers) that exhibit a significant diversity regarding their members’ knowledge, goals, and underlying assumptions. Yet, creating shared understanding among diverse stakeholder groups in transformations is a main antecedent for success. The paper analyzes which properties of enterprise architecture models contribute to syntactic, semantic, and pragmatic capacities which helps to create shared understanding among stakeholder groups involved in enterprise transformation. The differences among stakeholder groups are assessed through the lens of knowledge boundaries, and enterprise architecture models are assessed through the lens of boundary objects. A research model is developed and empirically tested that describes which boundary object properties are required to overcome three progressively complex knowledge boundaries – syntactic, semantic, and pragmatic. The findings show which boundary object properties contribute to a respective capacity needed to overcome each of the three knowledge boundaries. Specifically, the results show that for (1) a syntactic capacity, concrete and modular enterprise architecture (EA) models are helpful; (2) a semantic capacity, visual EA model properties are relevant, and (3) a pragmatic capacity, broad stakeholder participation is conductive

The German Savings Puzzle

Germany has one of the most generous public pension and health insurance systems of the world, yet private savings are high until old age. Savings remain positive in old age, even for most low income households. How can we explain what we might want to term the 'German savings puzzle?' We provide a complicated answer that combines historical facts with capital market imperfections, housing, tax and pension policies. The first part of the paper describes how German households save, based on a synthetic panel of four cross sections of the German Income and Expenditure Survey ('Einkommens- und Verbrauchsstichproben') collected between 1978 and 1993. The second part links saving behavior with public policy, notably tax and pension policy.

"Household Savings in Germany"

This paper describes how German households save and how their saving behavior is linked to public policy, notably pension policy. The analysis is based on a synthetic panel of four cross sections of the German Income and Expenditure Survey ("Einkommens- und Verbrauchsstichproben," EVS,1978, 1983, 1988, and 1993). The paper carefully distinguishes between several saving measures and concepts. It separates discretionary savings from mandatory savings and uses two flow measures: first, the sum of purchases of assets minus the sum of sales of assets and, second, the residual of income minus consumption. Our main finding is a hump-shaped age-saving profile with a high overall saving rate. However, savings remain positive in old age, even for most low-income households. How can we explain what may be termed the "German savings puzzle"? Germany has one of the most generous public pension and health insurance systems in the world, yet private savings are high until old age. We provide a complicated answer that combines historical facts with capital market imperfections and a distinction between the role of discretionary and mandatory savings.

Understanding Coordination Support of Enterprise Architecture Management – Empirical Analysis and Implications for Practice

Enterprise architecture management (EAM) is a means to guide the consistent evolution of business and IT artifacts from an enterprise-wide perspective. This paper aims at understanding the means by which EAM supports this coordination task. Informed by theory of coordination and based on empirical data (n=95) we group participating enterprises in different clusters: (1) non-coordinators, (2) dominators and (3) negotiators. We find that a similar awareness of opportunities exists in all three clusters, yet there are gaps in the realization of EAM coordination support: non-coordinators show the lowest realization, negotiators the highest. Based on this clustering and two follow-up focus groups, we provide implications about the occurrence of the clusters in enterprises and on further EAM development options