1,721,073 research outputs found
Life-Cycle Models, Economic Puzzles and Temptation Preferences
No full textThis paper focuses on the difficulty of standard life-cycle models to predict the behavior observed in the reality, most noticeably the excess sensitivity of consumption to income, the under-provision for old-age consumption, the limited participation in the financial market, and the lack of asset decumulation after retirement. It shows that allowing for preference reversals, as it is the case in the “quasi-hyperbolic discounting” and “temptation” models, may contribute to explain jointly these economic puzzles. A life-cycle model based on temptation preferences, in particular, is attractive as it preserves time consistency and can be solved with standard dynamic programming techniques
Household Portfolios Efficiency in the Presence of Restrictions on Investment Opportunities
No full textThis paper proposes a new test for verifying the mean-variance efficiency of household portfolios. Unlike the standard statistics, the test takes account of two additional aspects: 1) wealth consists of real estate, held in fixed proportions in the short term, as well as financial assets, and 2) it is not possible to assume short positions in several financial assets. Performing the test on Italian households' portfolios as they appear in the SHIW 2000 survey, and treating housing as a fixed asset, we obtain an efficiency much more widespread than with common tests, revealing how inaccurate the standard theory is
Teaching Children to Save and Lifetime Savings: What Is the Best Strategy?
No full textWhile the importance of saving is widely accepted, our understanding on how to encourage people to save is still quite weak. We provide robust evidence of the effect of alternative parental teaching strategies on the propensity to save and the amount saved by their children during adulthood. Using a panel dataset from the Dutch DNB Household Survey we
find that parental teaching has a significant and large effects on saving attitude. Although the best teaching strategy involves a combination o
f different methods (giving an allowance, controlling how children spend their money, and talking about saving and budgeting), just giving an allowance is ineffective. Individuals who received no parental teaching tend
to procrastinate their savings as long as they can
Locus of control and saving: the role of saving motives
Full text linkUsing data from a longitudinal survey representative of the Dutch population, we analyze the relationship between saving and locus of control, and we study the underlying mechanisms. Locus of control measures the extent to which individuals perceive their life outcomes to be determined by their own actions, as opposed to external factors. Those who believe to be in control of future outcomes turn out to save more, both at the extensive (decision to save) and intensive margins (amount saved). We investigate the mechanisms behind this relationship. We implement a mediation analysis to examine the role of saving motives, distinguishing between specific and non-specific purposes. The effect of external locus of control is direct, while the effect of internal locus of control is indirect, largely driven by (non-specific) saving motives
Financial Risk Aversion and Personal Life History
No full textThough risk attitude is central to economics and finance, relatively little is known about how it is formed and how it changes over time. Based on
US data from a dedicated psycho-social module on lifestyle of the 2010 Health and Retirement Study (HRS), we provide new evidence on the correlation between financial risk attitude and life-history negative events out of an individual’s control. Using observed portfolio decisions to proxy for risk aversion, we find correlation with two of such events: having been in
a natural disaster and (especially) the loss of a child. These effects survive after controlling for classic socio-demographic determinants of risk aversion
Household Portfolios and Risk Bearing over Age and Time
No full textWe exploit the US Survey of Consumer Finances from 1998 to 2007 to study households’ portfolio risk bearing. We compare four alternative measures of risk, two based on a financial portfolio and two based on a broader portfolio also including – as illiquid assets – human capital, real estate, business wealth and related debt. The measures provide a different ranking of household risk bearing, but they consistently show that risk bearing fell after 2001, and it positively correlates with wealth, income and financial sophistication. Furthermore, the risk-age profile is sensitive to the definition of portfolio, although it looks flat for many years
Optimal Asset Allocation based on Utility Maximization in the Presence of Market Frictions
No full textDoes Investors' Personality Influence their Portfolios?
No full textWe present evidence that non-cognitive skills such as individual investors’ personality traits significantly impact their portfolio choices. Based on large-scale survey data from the 2006-2012 waves of the US Health and Retirement Study (HRS) we show that portfolio decisions are influenced by a variety of traits and facets traditionally investigated in the field of personality psychology. Two personality traits that taken together depict a self-centered personality profile appear to have the most significant impact on financial risk taking: lower Agreeableness and higher Cynical Hostility predict higher willingness to take risks. A number of robustness checks corroborate our results. We also show that the effects of Agreeableness seem to pass through the preferences – rather than the beliefs – channel. Our findings shed new light on the non-cognitive side of individuals’ risk taking and have implications for our understanding of the sources of heterogeneity in financial decisions
Pay Dispersion and Work Performance
No full textWe collected a unique dataset from the Italian soccer league to study the effect of pay dispersion on team performance, under different definitions of what constitutes a “team”. Our results show that when the team is considered to consist of only the players who contribute to the result, high pay dispersion has a detrimental impact on team performance. Enlarging the definition of work team causes this effect to disappear or even become positive. Finally, we find that the detrimental effect of pay dispersion is due to worst individual performance, rather than a
reduction of team cooperation
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