Towards Understanding Life Cycle Saving Of Boundedly Rational Agents: A Model With Feasibility Goals - Replaced by CentER Discussion Paper 2010-138

Abstract

This paper develops a new life cycle model that aims to describe the savings and asset allocation decisions of boundedly rational agents. The paper’s main theoretical contribution is the provision of a simple, tractable and parsimonious framework within which agents make forward looking decisions in the absence of full contingent planning. Instead, agents pursue two simple so-called feasibility goals. The paper uses this framework to shed light on important empirical patterns of asset allocation that are puzzling from the point of view of existing models.Behavioral economics;bounded rationality;equity shares;feasibility goals;life cycle saving;stock market participation